Filing for bankruptcy is typically the final resort when nothing else provides the relief that people seek. During and even after the bankruptcy is discharged, it’s important to manage your resources as best as possible. That includes seeking a loan. If you’re in the midst of a Chapter 7 or Chapter 13 action or have recently completed one, here are some things you should know about getting a loan after bankruptcy.
Getting a Loan After Your Chapter 7 is Discharged
A Chapter 7 bankruptcy is designed to discharge all of the debt included in the action. That’s done by submitting all assets that the court does not consider exempt to the trustee. The court oversees the sale of those assets and distributes the funds to your creditors. Once that’s done, the remaining debt is dismissed. The process typically takes four to six months.
You may find it easier to obtain a loan after completing the bankruptcy. That’s because creditors know that you cannot file another Chapter 7 action for quite a few years. Most high risk lenders will be willing to work with you, but do check with traditional lenders as well. That provides you with the opportunity to compare loan offers and see who provides the best terms and conditions.
What About Getting a Loan During an Active Chapter 13?
A Chapter 13 bankruptcy places you under the protection of the court and allows you to repay all or most of your debt within a three to five year period. Any debt remaining at the end of the term is discharged.
During the Chapter 13, the court of jurisdiction may not allow you to accumulate additional debt. In some jurisdictions, you are allowed to secure a small amount of debt without having to notify the court. In others, you may be able to obtain a loan of up to a certain amount if the court provides permission. Other jurisdictions will not allow the debtor to create new debt except under emergency circumstances.
Choosing to seek a loan when the court forbids such action could put the Chapter 13 in jeopardy. If the court should dismiss the action before you complete it, your creditors are free to seek collections, up to and including garnishing your wages. Never seek to obtain financing without checking with the trustee first.
Do Things Get Better Once I Complete My Chapter 13?
You may still find obtaining a loan difficult once the Chapter 13 is completed. As your credit score recovers, the process will be easier. High risk lenders are the most likely to work with you in spite of the recently discharged Chapter 13. Make sure the lender you choose reports regularly to the major credit bureaus. If you make the installment payments on time, they will slowly help rebuild your credit score.
What to Expect in Terms of Interest Rates and Other Fees
The lenders who are willing to work with you are likely to charge higher interest rates and additional loan fees. That’s because you do present more of a risk right now. Even so, some lenders will offer better terms than others. Try something along the lines of Magical Credit personal loans at first. You’re likely to find terms that fit into the budget with greater ease.
Completing any type of personal bankruptcy is an opportunity to strengthen your financial position. With the right loan offer, you can rebuild your credit, take care of a pressing need, and once again be in control of your finances.