Life doesn't stop after bankruptcy. You'll still have expenses, you'll still need to buy things, and sometimes, you'll still need a loan. If there is a bankruptcy on your credit report, will it prevent you from borrowing money?
First, let's look closely at the two types of personal bankruptcy filings: A Chapter 7 personal bankruptcy will remain on your credit record for 10 years, while a Chapter 13 bankruptcy will appear on your credit report for seven years. A Chapter 7 will absolve you of repaying unsecured debt, while a Chapter 13 will include a repayment plan of most of your existing debt.
Particularly in the case of a Chapter 7 bankruptcy, it could work in your favor. Creditors know that you soon won't have a mountain of unsecured debt and that you can't file for bankruptcy again for several years. This makes you less of a credit risk to some lenders, but don't expect creditors to reward you with easy approvals and attractive interest rates. Most will make it difficult to get a loan and will ratchet up interest rates.
If you've declared bankruptcy and want to apply for a loan, here are some tips [sources: Ender, Williams, Bankrate]:
- Curb your debt. If you filed for bankruptcy, then ran up a load of unsecured debt, that's a warning sign that you may not be able to repay a loan -- or handle credit that's awarded to you.
- Earn an income. This sounds obvious enough, but you will need to demonstrate to lenders that you have a track record of earning steady income. This will help ensure you have the ability repay a loan.
- Save some money. If you're applying for a mortgage or a car loan, you'll probably be asked to pay a percentage of the purchase price up front. The same is true for secured credit cards, which require you to pay a lump sum to receive credit of the same amount. You may also need to show that you have an "emergency fund" savings account, in case of surprise expenses.
- Pay on time. Now that you are post-bankruptcy, you are rebuilding your credit. This makes it vital to pay your bills on time. This will help boost your credit score and will give creditors confidence that you will pay them back.
- Track your credit. Frequent checks of your credit report can alert you to potential problems. You'll want to ensure that if you have gotten a credit card or a loan that the lender is reporting your timely payments. In addition, you'll want to ensure there aren't any erroneous debts on your credit report; any debts discharged during bankruptcy should have a zero balance when the bankruptcy process is complete.
Of the many different types of loans you may be considering, a car loan, a student loan or a secured credit card will typically be the easiest to secure. The good news is that a bankruptcy won't prevent you from securing a loan. A bankruptcy will, however, make obtaining that loan more challenging.