Most people facing bankrutpcy – and there are a lot (according to the American Bankruptcy Institute close to 766,700 individuals and businesses filed for bankruptcy in 2017) – fear that they’ll be unable to ever secure a personal loan because of the damage it can do to someone’s credit. There are ways to do it though, and we’ll outline them below.
Can You Get a Personal Loan After Bankrutpcy?
The process of bankruptcy can either restructure your debt or wipe it out altogether. But in that process, it also hurts your credit score by anywhere from 130 to 240 points and can stay on your credit report for up to 10 years. That damaged credit is the reason it can be hard to qualify for a personal loan or line of credit. That damaged credit doesn’t entirely disqualify you though.
Discharging debt can actually help your credit score by lowering your debt-to-income ratio. Filing a bankruptcy can also allow you the time to take steps to improve your credit by offering you a completely fresh start.
If you’re looking for a personal loan after bankruptcy, here are five steps you should take.
1. Order a credit report and monitor your credit score
You can order a comprehensive report from the major credit bureaus: TransUnion, Equifax, and Experian.
These reports will allow you to take a look at your financial history so you can make sure your accounts are all up to date.
You can also look at the following factors that affect your credit score:
History of repayment
Length of credit history
New credit accounts
You can also monitor your credit score at sites such as Credit Karma
Understanding your credit history and score can be beneficial when you are presenting your application to a personal loan provider.
2. Speak with multiple lenders about your situation
There are a number of options available to you when it comes to borrowing, such as:
Credit unions tend to be more forgiving than online lenders when it comes to approving applicants with lower credit scores. Shop around for personal loans. Even though one lender may reject your application, another might be willing to work with you.
3. Be careful around bad credit personal loans
Some personal loan lenders don’t have strict credit requirements, but you’ll want to be wary as this flexibility usually comes at a cost – in the form of sky-high interest rates on its installment loans. This can kick-start a dangerous cycle since you also won’t have bankruptcy as an option, since you have to wait years — eight for Chapter 7 bankruptcy and two for Chapter 13 — before you can file again.
Always make sure to estimate a repayment plan whenever you decide to take out a personal loan. This way you’ll have a clear picture of what your monthly payments will be, as well as how much interest you’ll have to pay.
4. Consider taking out a Secured Personal Loan
With secured personal loans there are less stringent requirements because the loan is backed up with assets such as your savings, investments, CDs, car, or home. As a result, many loan holders are able to offer lower interest rates.
Be mindful though, as these loans risk your assets and debt collectors are able seize them in the event you can’t repay your debt.
5. Take steps to build your credit
There are many avenues to rebuild your credit, such as secured credit cards. This type of credit card allows you to put down a deposit that’s usually equal to your credit limit. Your credit limit might be low, but by paying your card on time every month, your credit score will improve.
A Quick Review of Bankruptcy
Before we talk about what happens when you file for bankruptcy, and how to move forward from it, let’s first review what bankruptcy is.
Chapter 13 bankruptcy is designed to allow you to keep all of your property but is also determined by your property. The amount of your nonexempt property affects how much-unsecured creditors get paid during your bankruptcy process. And to avoid foreclosure or repossession, you still need to keep up with the payments you make for you secured debt, such as mortgages or car loans.
When you file a Chapter 7 bankruptcy, almost all of your assets and property are liquidated and thus become property of the bankruptcy estate that is sold to allow you to repay your debts. There are some exceptions to this though.
During your Chapter 7 bankruptcy, a bankruptcy trustee is appointed and given the authority to sell your assets so that you are able to pay your creditors. Just because your assets are being sold, that does not mean that all of your property needs to be sold.
Chapter 11 Bankruptcy
Under Chapter 11 bankruptcy, the business or individual undergoes a reorganization in order to pay down its debt and reorganize its income and expenses while regaining its profits. If your business is a corporation, limited liability company (LLC) or partnership, it can continue business operations during the bankruptcy process. While the business is making payments through the debt repayment plan, the business continues operating.
The Chapter 11 bankruptcy process can be a complex, and lengthy one. If you are facing a Chapter 11, you’ll want to work with a bankruptcy attorney to understand the process and what you will need to do to move through it. They will be able to explain the terminology in addition to what is legal, and what you will be required to do.
Move Forward Emotionally
There are a lot of emotions that go into filing for bankruptcy. It’s important to realize that bankruptcy is not the end of the world. In fact, it’s a way to move forward without the stress of creditors breathing down your back. Here are some tips for how to move forward.
Stop the Guilt Trip
It’s not uncommon for people to feel feelings of disappointment and failure when they declare bankruptcy. These are tough economic times. In 2010, U.S. personal bankruptcy filings rose by 9 percent. That translates to 1.53 million bankruptcy filings. According to a 2011 survey by FindLaw.com, one in eight adult Americans (13 percent of the population), consider filing for bankruptcy. You are not alone, so stop feeling guilty, or as if you have failed.
Focusing on what you have – the ability to move forward can help you remain positive. In addition to this, surround yourself with positive people.
Working with a Bankruptcy Attorney
Bankruptcy law can be hard to understand. As you can see, there are a number of processes involved that you might not be fully aware of. Because of this, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have. A bankruptcy attorney might also be able to prescribe options that keep you out of having to declare bankruptcy in the first place. There can be a lot of questions during this extremely stressful time. Let the lawyers at Resnik Hayes Moradi LLP walk you through the process so you can achieve the best outcome possible.