Personal Loans for Bankrupts: Are You Still Eligible?
If you've just declared bankruptcy, things might be looking a bit dim right now, especially when it comes to your finances. Not only will it greatly affect your credit score, but it's also going to stay in your credit report for at least seven years. That would be 10 years if you filed a Chapter 7 bankruptcy. While you've been given a relatively clean slate (not all debts will be wiped out), you've definitely got your work cut out for you. You'll need to rebuild your credit, and to do that you'll need credit. It sounds like a vicious cycle, but we'll make things clearer as we go along. Now that we've established that you're going to need credit, let's talk about how you can do this. One good option is through personal loans.
Personal loans for bankrupts are available to some. But you need to make sure that the loan you choose is not predatory in nature, leaving you in an even worse financial situation than when you started. Before we teach you how to shop for personal loans for bankrupts, let's first talk about why these particular loans can help you get back on your financial feet.
Why Get a Personal Loan After Bankruptcy?
We've already mentioned that to build credit you're going to need credit. Why is that? Well, one of the most important factors that affect your credit score is your payment history. On-time payments made to your personal loan can help provide proof that you're changing your ways and becoming more financially responsible. You don't even have to wait for the full seven to 10 years to pass before you start establishing positive credit habits. You can start right away as long as you find the right personal loan.
Loans after Bankruptcy
Finding loans after bankruptcy is by no means impossible. Some people who have experienced bankruptcy think that lending is out of the question, but actually, personal loans after bankruptcy are possible.
You will need to carry around the effects of having been bankrupt for some time. Chapter 7 bankruptcy will stay on your record for up to 10 years. Chapter 13 bankruptcy is deleted after seven years. Though this will impact the decision lenders make, it is not terminal for your lending options. There are even some financial products and bankruptcy loans made specifically for those with a jaded financial past. Loans after bankruptcy are still required by many people.
To get a loan after bankruptcy means that you will need to rebuild your credit. You need to make some changes to the way you borrow. Some lending companies may restrict the terms of loans after bankruptcy so that you can still borrow, but with the terms changed from many standard personal loans.
There is a chance that bankruptcy loans require you to pay more in interest, and that you will be offered small personal loans after bankruptcy while you rebuild your credit score. Lenders are less likely to lend large sums of cash to someone they see as a risk. These smaller, restricted loans and specific loans after bankruptcy are a way to rebuild and almost start again with your credit score. Eventually, previous bankruptcy will be erased from the record.
Can I Get a Loan or Credit During Bankruptcy?
The bankruptcy process, bankruptcy loans, and what happens during and after can be different depending on the different types of bankruptcy, and which you opt for. The financial aid on offer might also vary.
Theoretically, it is not illegal to get a loan during bankruptcy. There are personal loans for fair credit and even for bad credit. Personal loans for discharged bankrupts are possible. You are not meant to take out any loans during Chapter 13 bankruptcy, as your disposable income should be used to pay the existing creditors you have.
Getting personal loans for discharged bankrupts can be difficult. During Chapter 7 bankruptcy, you have to tell lenders if you plan to obtain bankruptcy loans over $500. You may find your options to find personal loans for bad credit limited.
Chapter 7
Chapter 7 bankruptcy is a faster process. It is a liquidation form of bankruptcy designed for individuals and businesses. It can take up to six months for the proceedings to be completed. This type of bankruptcy is normally for people who aren't able to repay all of their debts in the future.
Chapter 13
This is the reorganization style of bankruptcy for individuals and sole proprietors. This process can take much longer, up to five years. The debtor agrees to pay a trustee during this loan. You can apply for this type of bankruptcy if you have a regular income, and your unsecured debts are under $394,725.
If you are making money, you can use this to pay towards bankruptcy. The Chapter 13 type of bankruptcy might be preferable as it may mean you can keep some of your assets rather than have them repossessed, as you will be repaying a large percentage of the debts over the course of the bankruptcy.
How to Get Personal Loans for Discharged Bankrupts:
#1 Get a Copy of Your Credit Reports
Before you check to see which lenders will be open to giving you a loan, you're going to need to check your credit reports first. There are three major bureaus: Experian, Equifax, and TransUnion. Each of these credit bureaus provides one free report each year. Once you get your copy, you need to look at every single detail within and fix errors on your credit report and make sure that everything is up to date.
If you filed a Chapter 7 bankruptcy, you need to ensure that all of your eligible debts are now showing a zero balance. Those who filed a Chapter 13 bankruptcy will need to ensure that all their repayments are reflected in the report correctly. Any inaccurate information will need to be disputed so that they will be correctly reported or deleted from the report altogether.
#2 Check Your Reportable Income
While your credit score and credit reports are incredibly important, they aren't the only factors that a lender will consider when checking your application. You may need to prove that you have enough income to pay off the loan. Having sufficient income will prove to them that you're less of a risk. This is why it's very crucial that your reportable income is correct. You need to make sure that all your income sources are included, such as any raise or side income you may have. Even your spouse's income can be included because you have easy access to that cash. Also, make sure that you have all the necessary documentation to prove that your reportable income is correct. Proof may include bank statements, pay stubs, tax returns, and a W-2.
#3 Prepare Your Case
It's no surprise that reputable lenders are wary of individuals who have declared bankruptcy. After all, these individuals had their debts either partially or completely liquidated, which means previous lenders experienced a financial loss. What you'll need to do is to convince them that you are committed to developing better credit habits. Make sure to be completely open and honest about the circumstances that led to your bankruptcy. You'll also need to provide proof of your commitment by making on-time payments on all your bills and any secured debt you may still have. You can even show proof of any savings you've accumulated after declaring bankruptcy. Take note that doing all of this will not guarantee that your application will be approved. But it never hurts to try.
#4 Start Shopping
It has to be said that finding a lender who will offer a personal loan to an individual who has filed for bankruptcy isn't going to be easy. Some lenders do specialize in this kind of service, but you need to make sure that they aren't offering you terms (high-interest rates and additional fees) that will just put you back deep into debt. Below are some options that you may want to consider.
Local Bank
You may have a better chance of getting approval and reasonable terms with your community bank than a large one, especially if you already have an established relationship with them. They're more likely to be more flexible when it comes to your application.
Credit Union
A credit union is a non-profit organization that is owned by members. Because they are more focused on serving the community than making a profit, your local credit union may be more open to giving you a loan despite your poor credit. However, you'll need to be a member in order to submit a loan application. And new members who do not yet have a history with the organization may have a more difficult time securing a loan.
Online Lenders
There are plenty of online lenders for you to choose from. But not all of them specialize in providing loans to people with bad credit. The benefit of going to an online lender is that you can quickly submit your applications and compare their offers without leaving your home. Make sure that you send in your applications within a week of each other so that all their credit checks will be considered as just one, and your credit score won't take too big a hit.
Peer-To-Peer Lending
Peer-to-peer lending platforms are "marketplaces" for individual borrowers and individual lenders. They act as an intermediary between the two. The benefit of going this route is that there are some individual lenders who don't mind investing in high-risk loans, which may increase your chance of getting approved even if you've declared bankruptcy.
What if I'm Rejected for Personal Loans for Bankrupts?
As we've already mentioned, there is no guarantee that you'll get approval even if you did all you could to make yourself look good financially. But that doesn't mean that you need to give up. There are alternatives that may be open to you.
#1 Get a Cosigner
On your own, you may look like a financial risk to a lender. This why getting a personal loan with a cosigner may be a good idea. If someone with good credit cosigns the personal loan with you, it becomes less of a risk for the lender, and your chances of getting approved become higher. However, cosigning a loan is not a simple thing. Not only is that person lending you their good name, he or she is also responsible for paying off the loan if you cannot. If you default on the loan, their credit could suffer.
#2 Get a Secured Personal Loan
If you are unable to get an unsecured personal loan, your chances of getting approved may increase if you put up some collateral such as investments, real estate, your car, and your savings account. Before you apply for this, though, it is important that you understand the risks. One, if you default on the loan, you may lose your collateral, which can lead to further financial problems. And two, the value of your collateral may be worth more than the amount you're getting through the loan.
