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Personal Loans After Chapter 7 Discharge or Chapter 13

Personal Loans After Bankruptcy; It may be possible to get approved for a personal loan after a bankruptcy, but there is more you need to know about ways bankruptcy affects your financial standing.
Ashley Kilroy
Ashley KilroyUpdated March 27, 2023
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Getting installment loans after bankruptcy is possible, but it may be difficult if you don’t have a creditworthy cosigner. Personal loans after Chapter 7 discharge can help you rebuild your credit, so exploring installment loans after bankruptcy may be right for you.Bankruptcy can sound intimidating. That’s not just because of the financial implications, but also the negative emotional toll it can take on you. While you’re contending with the stress of the immediate situation, you also have to face the many ways bankruptcy will affect your life down the road and especially the impact filing can have on your credit report. From loans to job applications, your credit report touches on many aspects of your everyday life, and a bankruptcy remains on it for years.But as mentioned above, it can be possible to get installment loans after bankruptcy. You can recover from bankruptcy and move forward with a fresh start. Below we highlight common challenges if you’re interested in personal loans after Chapter 7 discharge or after a Chapter 13 discharge of your debts.

What Is Bankruptcy

Bankruptcy is a legal process that helps people either erase their debt completely or establish repayment plans that make their debt loads more manageable. Bankruptcy can be declared by an individual or by spouses (as well as by corporations). If a debtor needs to declare bankruptcy, he or she must file a petition with the bankruptcy court. Once the petition is filed, the bankruptcy case can commence in federal court.Depending on the situation of the debtor, there are two different types of bankruptcy possible for individuals: Chapter 7 and Chapter 13. Going through bankruptcy makes you insolvent, but there are some differences between insolvency vs. bankruptcy. Insolvency is a financial state, whereas bankruptcy is a legal designation.Below we highlight the differences between Chapter 7 and Chapter 13 bankruptcy:

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is what you may usually think of when you hear about someone filing for bankruptcy. This type of bankruptcy requires the court to appoint a trustee to oversee the liquidation of the debtor’s assets. Once the designated assets are sold, the proceeds are given to the creditors in order of their priority according to the Federal Bankruptcy Code.After the bankruptcy is discharged, the remaining debt balance is wiped clean. Although Chapter 7 can eliminate all sorts of debt, it’s possible debtors would still be required to pay child support, alimony, certain taxes, or student loans, depending on the court order. 

Chapter 13 Bankruptcy

Also referred to as the “wage earner’s plan,” Chapter 13 bankruptcy aids debtors in making specific plans for repaying their debt.Depending on the debtor’s income, the debtor will get between three to five years to repay the debt to the creditors. The court establishes the repayment plan, which consists of installment payments. After that, the debtor designates a trustee who will then pay the creditors with the installments. Once the debtor fulfills the completed repayment agreement, the majority of the outstanding debt is usually removed.As with Chapter 7 bankruptcy, not all debts are wiped away with Chapter 13. There are certain debts that the debtor must still pay, including alimony or debts that occur after the bankruptcy filing. Getting federal student loans discharged in bankruptcy can be difficult but not impossible.

What Are the Consequences of Bankruptcy?

Although bankruptcy helps you eliminate your debt for good, it comes with some hefty consequences. Below we highlight some of the consequences of bankruptcy:

Credit Score After Bankruptcy

When a bankruptcy appears on your credit report, it’s a derogatory mark that can cause your credit scores to plunge. A bankruptcy can remain on your credit report for up to 10 years, and lenders may regard it as a red flag.Because bankruptcy is not the sign of a good borrower in the eyes of lenders and creditors, they may deny your credit applications or charge high interest rates. Filing for bankruptcy can hurt your personal loan approval odds.

Affecting Cosigners

You’re not necessarily the only one who may be financially hurt. If any cosigner is on a loan with you, that person could also be held responsible for a portion of your debt when you file for bankruptcy.

Forfeiting Assets

A U.S. Bankruptcy Court order may require you to liquidate some of your most valuable goods to pay creditors. In other words, you could end up losing your car, real estate, jewelry, or antiques that have been in your family for centuries.

Can You Get a Loan After Bankruptcy?

The good news is that just because you filed for bankruptcy doesn’t mean you won’t qualify for a loan. Whether or not you can get a quick personal loan depends on your individual situation.A bankruptcy filing may cause your VantageScore® and FICO® credit scores to plunge. A bankruptcy flag may remain on your credit report for as long as 10 years. Credit bureaus may use their discretion to report a Chapter 7 bankruptcy for 10 years and a Chapter 13 bankruptcy for seven years. This can make obtaining loans after bankruptcy more difficult than it may have been before your bankruptcy.However, each lender has different rules for its personal loan applicants. In some cases, if a lender sees bankruptcy on your file, it may reject you entirely. Other lenders may approve you but only with unfavorable terms or high interest rates. That’s because lenders typically want to minimize the risk of losing money, and having a bankruptcy on your record may make you look more risky as a borrower.Even if you do have difficulty getting a loan after you declare bankruptcy, bankruptcy shouldn’t bar you from an unsecured personal loan approval forever. If you stay consistent with your repayment plan or if your debts are canceled, you may be able to rebuild your credit history over time. Even if you don’t have a repayment plan in place, paying back any outstanding debts after filing bankruptcy can help rebuild your credit.

Getting a Cosigner

Getting personal loans after bankruptcy can be difficult on your own merits. A creditworthy cosigner, however, can help you get approved for a personal loan. A cosigner is another person — perhaps a trusted friend or family member — who shares the financial responsibility of repaying the loan if the primary borrower falls short.A cosigner shares the liability of the debt but has no right to the proceeds. That means the cosigner cannot dictate how the primary applicant uses the personal loan after bankruptcy. A creditworthy cosigner reduces risk to the lender by vouching for the primary applicant.If you’re interested in buying a car, a creditworthy cosigner can help you get approved for a car loan after bankruptcy.

Pros and Cons of Personal Loans After Bankruptcy

The below table highlights some of the pros and cons of getting personal loans after bankruptcy:
May help you rebuild your creditYour annual percentage rate (APR) may be as high as 35.99%
Can provide you with a lump sum of cash to be repaid over a set termThe lender may charge origination fees up to 10% of the loan amount
Repayment terms generally range from 12 months to seven yearsLenders may require collateral, a cosigner, or co-borrower as condition of loan approval

What To Do If You’re Rejected For a Personal Loan After Bankruptcy

While it can be disheartening to get rejected, don’t let it stop you from working toward your goal. You may need to step back and reevaluate your plan. You won’t be in the same position as long as you continue to build up better financial habits. While you put in the effort during your daily life, don’t be shy about showcasing the results to your lender.You may ask the lender to reconsider its decision before going back to the drawing board. One possibility is to explain the circumstances which led to your bankruptcy, and then show concrete proof of how you can afford making personal loan payments. If you’ve begun to build up savings, you could let the lender know about the changes you’re making.If you can’t appeal to a lender based on your behavior, though, you might be able to boost your case with a more substantial financial backbone. Consider asking a trusted individual in your life to cosign on the loan. That person will be responsible for the loan as well, though you will be expected to pay it.Ultimately, your chosen lender may stick to its decision, but building a case may help you apply or soften its choice the next time. You may have a higher chance of success if you approach an institution with which you already have a relationship. Alternatively, you can seek out the help of a local credit union, community bank, or private lender for funding.

Avoiding Bankruptcy

Bankruptcy can have a lasting impact on your credit and well-being. Before you decide to file, here are some alternatives you may consider:
  • Getting help from a government-approved credit counseling agency. You may not have to work directly with your creditor or negotiate on your own behalf. You can seek out the aid of a credit counseling agency. They’re typically nonprofit, which allows them to provide services to anyone. Some may charge small fees, but those can be waived if you prove your financial hardship. In turn, they can help you outline a plan to repay your debts, work with you to ensure that you follow through, and overall improve your financial standing. The United States Trustee Program has online listings of approved agencies organized by state.
  • Taking out a line of credit or a loan to consolidate your debts. You may qualify for a debt consolidation loan or line of credit to pay off multiple debts. You might typically choose this method to cover the high-interest debt, such as credit card bills, medical bills, or unsecured loan debt. With a debt consolidation loan, you may be able to lower the total amount of interest you owe on your debt and pay it down at a faster rate. However, it may be challenging to get a loan if you have poor credit.
  • Negotiating with your creditors. Your creditors would likely rather receive their money than watch you default on your debts. So you might be able to work together to create a repayment plan that ensures a regular but feasible payment system. The kind of negotiation often depends on your lender and what type of debt you owe. Keep in mind that debt settlement vs. bankruptcy will show up on your credit report and can negatively impact your credit score.
  • Borrowing funds from your friends and family. If you need a little financial boost, your friends and family might be willing to lend a hand. However, make sure you establish a repayment plan with them to ensure that you repay them promptly. Failing to repay the funds might cause a rift in your family.
  • Requesting a new repayment plan. If you’ve fallen on hard times, some lenders offer hardship programs to help you navigate repayment through financial difficulties. Lenders may be willing to give you a new repayment plan under a loan modification.
Regardless of which option you choose, make sure you stick to it. If you have a repayment plan, follow it as laid out so that you can start on the path to rebuilding your credit. Remember that even if these options do not work, bankruptcy is not a permanent marker on your credit report.If bankruptcy is not right for you, one of the alternatives may help you rebuild credit and get on track. The key is picking a path that’s right for you.

Personal Loan Rates

It’s possible to qualify for a personal loan after bankruptcy. If you’re looking for an easy way to see what exactly you might qualify for, you can compare personal loans interest rates with Lantern by SoFi. Fill out one simple form and, in just minutes, you’ll have the details you need to make an educated decision for your financial situation.Find and compare personal loan rates with Lantern.

Frequently Asked Questions

Can you get a loan after bankruptcy?
Can I get a personal loan after Chapter 7?
How long after claiming Chapter 7 bankruptcy can I get a loan?
How long does it take to rebuild credit after Chapter 7?
Does bankruptcy clear personal loan obligations?

About the Author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a personal finance expert with years of experience in radio, newspapers, magazines, and online content. Her work has appeared on websites including Forbes and Yahoo Finance. Ashley writes on a variety of personal finance topics for SoFi, including student loans, taxes, and insurance.
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