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Personal Loans After Bankruptcy

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Ashley Kilroy

Ashley Kilroy

Updated July 28, 2021
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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.
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 score touches on many aspects of your everyday life, and a bankruptcy remains on it for years.But it can be possible to get a personal bankruptcy. The damage is not permanent. You can recover from bankruptcy and come back better than ever with new financial habits to keep you stay afloat. First, however, you should be sure you know what bankruptcy can entail. Here's information about Chapter 7 bankruptcy and Chapter 13 bankruptcy that you should know as you focus on recovery. Please note: This article is meant to be a source of commonly available information. Always consult with an attorney and/or tax professional if you have questions about legal, tax, or bankruptcy advice. 

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. 

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 you’ll still be required to pay child support, alimony, 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, like student loan debt, alimony, or debts that occur after the bankruptcy filing. 

What Are the Consequences of Bankruptcy?

Although bankruptcy helps you eliminate your debt for good, it comes with some hefty consequences. These include:
  • Forfeiting your personal assets. The courts 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. 
  • 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. 
  • Damaging your credit. When a bankruptcy appears on your credit report, lenders typically look at 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  

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 personal loan depends on your individual situation. Filing for bankruptcy will have an impact on your credit history and your credit score. A lender can see a Chapter 7 bankruptcy on your credit report for as long as 10 years and a Chapter 13 filing for up to seven years. That 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 strengthen your credit history. The sooner you act, the better off you’ll be in the long run, too. 

What To Do If You’re Rejected From a Personal Loan

While it can be disheartening to get rejected, don’t let it stop you from working towards 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 can try appealing to the lender’s 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’ve improved your situation. If you’ve begun to build up savings or a regular schedule of payments, 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. Or, you can revisit the loan proposal if and when your credit score has improved. You can focus on paying off other debts in the meantime or building on your savings. 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 other unconventional options. It may use looser guidelines that allow it to take on cases other lenders might not.

Avoiding Bankruptcy

Bankruptcy can have a lasting impact on your credit, finances, and well-being. Before you decide to file, there are a few other options that may be worth considering. 
  • 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 or debt 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 listings of approved agencies organized by state at Justice.gov
  • Taking Out a Line of Credit or a Loan to Consolidate Your Debts. You may qualify to borrow a credit line or loan 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 a poor credit score. 
  • 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 will show up on your credit history and can negatively impact your 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. But, make sure you establish a repayment plan with them to ensure that you repay them promptly. No repaying the funds might cause a rift in your family. 
  • Contacting Your Lenders About a New Repayment Plan. If you’ve fallen on hard times, some lenders offer hardship programs to help you navigate repayment through financial difficulties. 
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. No matter the path you choose, the right vision and work ethic can help drive you to the road of recovery.

The Takeaway

Bankruptcy is a difficult choice to make. But it may help to know that, although bankruptcy can affect your credit, you can rebuild. And part of that rebuilding may be taking out a personal loan and making timely payments to establish a better credit history. The irony is that bankruptcy can make it harder to qualify for that loan. Nonetheless, you may still be able 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 your options 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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0421049

Frequently Asked Questions

Can you get a loan after bankruptcy?
Can I get a personal loan after Chapter 7?
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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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