Can You Get a Personal Loan After Bankruptcy?

Bankruptcy can help those who can no longer repay their debts start over with a clean slate. Even though bankruptcy remains on your credit report for several years, it doesn’t disqualify you from borrowing again. You may be able to qualify for a personal loan after bankruptcy; however, it may be more difficult to get approved since it shows lenders that you’ve had trouble repaying debts. 

If you’re rebuilding your finances, here’s what to know about qualifying for a personal loan after bankruptcy.

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

Does the Type of Bankruptcy You Filed Affect Your Chances of Getting Approved?

How bankruptcy affects you depends on the type of bankruptcy filing. 

Chapter 7

Chapter 7, also known as liquidation bankruptcy, erases unsecured debts, such as credit cards and medical debt, without a repayment plan, but you may have to liquidate some assets to pay creditors.

Lenders may be more cautious about extending new credit shortly after a Chapter 7 filing. This type of bankruptcy also stays on your credit report for up to 10 years, which can affect your credit score and overall creditworthiness during this time.

Chapter 13

A Chapter 13 bankruptcy works differently. It allows you to keep your assets, but it doesn’t eliminate your debt immediately and typically requires a court-supervised repayment plan lasting three to five years. During this time, you make structured payments to creditors based on your income and debts. Afterward, the court may discharge or forgive any remaining eligible debt.

Since Chapter 13 bankruptcy involves repaying a portion of what you owe, it could demonstrate that you’re taking steps to manage your debt responsibly. In some cases, it may be possible to obtain certain types of credit during the repayment plan, but you may need permission from the bankruptcy trustee or court. A Chapter 13 bankruptcy also stays on your credit report for up to seven years.

How To Get Financing After Bankruptcy

Here are some steps you may need to take to get financing after bankruptcy.

1. Consider the Type of Loan

Depending on the lender’s requirements and how much you want to borrow, several types of loans are available after bankruptcy. Here are a few options:

• Secured loan: A loan backed by collateral, such as a home or car.

• Unsecured loan: A type of loan not backed by collateral.

• Cosigned loan: A loan with a cosigner, or someone with good credit and income who agrees to repay if the primary borrower does not.

• Credit-builder loan: An installment loan designed to help borrowers build credit.

2. Get the Court’s Permission, If Necessary 

If you filed a Chapter 13 bankruptcy, you may need the court’s approval before taking out a new loan. This is because Chapter 13 requires a court-supervised repayment plan, and taking on new debt could affect your ability to make those payments.

3. Wait for Discharge

Some lenders may require a waiting period after your bankruptcy discharge before approving a loan. A discharge means the court has officially released you from certain debts included in bankruptcy. The length of the waiting period usually depends on the lender and the bankruptcy filing. 

For example, Fannie Mae requires a waiting period of four years for a Chapter 7, from the discharge or dismissal date of the bankruptcy action, while a Chapter 13 has a waiting period of two years from the discharge date or four years from the dismissal date.

4. Check Your Credit

Knowing your credit score can help you know where you may stand before applying for a loan. You can request a copy of your credit report from one or all of the three major credit bureaus. If your credit score is too low, you can also use this time to rebuild it. 

5. Show Proof of Stable Income

Lenders want to see proof that you can afford to repay the loan. You may need to provide pay stubs, tax returns or bank statements.

6. Consider Applying With a Cosigner

If your credit score is too low to qualify for a loan, consider using a cosigner. A cosigner is someone who will take responsibility for the loan if you are unable to make payments.

7. Start With a Smaller Loan

A smaller amount may improve your chances of approval because it involves less risk. Repaying a smaller loan can also help you build a positive repayment history and improve your credit score.

8. Compare Lenders

Loan requirements may vary by lender. Some lenders also specialize in working with borrowers who are rebuilding their credit. Comparing multiple lenders can help you find options with more flexible requirements, loan amounts, or interest rates.

Rebuilding Credit After Bankruptcy

If you’re taking out a loan to help rebuild your credit, here are some alternatives.

• Use a secured credit card. A secured credit card requires a refundable security deposit that serves as your credit limit. If you default, the card issuer uses your security deposit to cover the balance on your card.

• Consider a credit-builder loan. A credit-builder loan can help build credit by establishing a positive payment history. 

• Become an authorized user. An authorized user is someone who has permission from the primary cardholder to use their credit card account. This can help improve credit history.

• Pay bills on time. Timely payments can help you rebuild your credit score after bankruptcy. According to myFICO, payment history makes up 35% of your score. 

• Keep credit balances low. Maintaining low balances on credit accounts can help improve your credit utilization ratio and show responsible use of credit.

Avoiding Debt Cycles and Scams

Bankruptcy doesn’t prevent you from qualifying for a personal loan. Before you start applying, it’s also important to be aware of potential scams and debt cycles.

Scammers often target borrowers with poor credit scores and may promise approval regardless of credit history. Many also don’t disclose fees before you apply, or call and offer you loans or other credit.

You should also borrow only what you can reasonably afford to repay. Taking on too much debt can make it harder to rebuild your financial stability after bankruptcy. This could lead to additional debt problems, where you consistently borrow money to pay existing debts or cover daily expenses.

Always choose reputable lenders, review loan terms, and borrow responsibly to help you avoid scams and reduce the risk of falling into a debt cycle.

FAQs

How soon after bankruptcy can I get a personal loan?

You may be able to get a personal loan after your bankruptcy is discharged. This typically takes three to six months after filing Chapter 7 bankruptcy, while Chapter 13 lasts three to five years before discharge. Some lenders may also require a waiting period after discharge and may look for signs that you’ve begun to rebuild your credit before approving the loan.

What is the easiest loan to get after bankruptcy?

The easiest loan to get after bankruptcy is typically a secured loan. This is because secured loans are backed by collateral, such as a mortgage on a house, reducing risk for the lender.

How long after bankruptcy can you get a bank loan?

How long after bankruptcy before bank loan approval depends on the lender, the type of loan, and the type of bankruptcy you filed. Some borrowers may qualify for certain loans after their bankruptcy is discharged, while others may need to wait longer while rebuilding their credit.

Sources

• United States Bankruptcy Court - What is the difference between bankruptcy cases filed under chapters 7, 11, 12 and 13?

• American Bankruptcy Institute - Debt Incurred After Bankruptcy Filing

• U.S. Code (Title 11, Chapter 13)

• ConsumerAffairs - Personal Loan After Bankruptcy: How It Works

• myFICO - What’s in my FICO scores?

• FTC - What to Know About Advance-Fee Loans

• United States Courts - Discharge in Bankruptcy

• Fannie Mae - Selling Guide

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