Getting a Loan After Bankruptcy: Is It Possible?

getting a loan after bankruptcy sba loans

Over 10 million bankruptcy petitions fill courtrooms ever year. While that number has gone down since the market crashes of 2008, it's clear that, despite the improved economy, people are still struggling.

If you've been among those that have declared bankruptcy in the past and now find yourself in a position where getting a loan after bankruptcy is a necessity, you may be wondering if that's a possibility.

In this post, we answer all of your questions related to post-bankruptcy loans and offer tips on how you can improve your loan opportunities.


Is Getting a Loan After Bankruptcy Possible?

To get this post's big question out of the way, if you're curious to know if getting a loan after bankruptcy is possible, the answer is yes. Millions of people do it every year and you can too.

Creditors are in the business of engaging large quantities of borrowers. For that reason, they've historically been more than willing to lend to bankruptcy filers with certain caveats.


How Can You Increase Your Odds of Getting a Loan Post-Bankruptcy?

Just because you can get a loan after declaring bankruptcy doesn't mean that you will. There's no denying that bankruptcies weigh heavily on lending decisions.

To give yourself the best odds of getting approved by a lender, keep these tips in mind as you conduct your loan search.


1. Check Your Bankruptcy Status

Getting a loan after bankruptcy is contingent on your bankruptcy case being discharged on your credit report. A discharge occurs when your bankruptcy proceedings have concluded in court.

In a perfect world, the moment that your personal or SBA loan bankruptcy case closes, your credit report would be updated. Unfortunately, that's not always what happens.

It's your responsibility to check your credit reports across all of the major bureaus to ensure that your bankruptcy status is properly reflected. If it isn't, you'll need to contact the offending bureaus and have them make adjustments.


2. Plan on Starting With Credit Building Products

After a bankruptcy, you won't qualify for the caliber of lending products that you used to. You'll need to prove your trustworthiness to lenders again by taking on less favorable loans for at least a year or so.

Less favorable loans will come with lower borrowing amounts, higher interest rates and fees that you may not be used to. While shopping around for the best loan possible is still something that you should do, be accepting of the fact that you may have to make some compromises.


3. Get a Secured Loan

If you can't qualify for an unsecured loan after bankruptcy, explore secured loans. Secured loans require that you offer collateral and borrow against it rather than lenders giving you money based on your promise to pay them back.

Forms of collateral accepted for loans may include your car, home, stocks and other valuables. Be sure to pay your loan back on time or else you'll forfeit your collateral to your lender.


4. Start Using Credit Responsibly

With the right mindset, it is 100% possible to get back to where you were from a creditworthiness perspective prior to your bankruptcy. Doing so, however, will take discipline on your part.

Don't take on more debt than you can comfortably pay back, always make your payments on time and keep an eye out for surprise charges that could drive up what you owe beyond what's manageable.


5. Get Financial Counseling

Managing one's finances can be hard for people that don't have a formal education in money management. If you find yourself unable to wrap your head around the stipulations of your debt or can't stop spending, seek counseling.

Communities may offer free financial counseling services for people that are in low-income brackets. 

If addiction to spending is your issue, you may be able to receive rehabilitation services with the help of your medical insurance provider.


6. Think About Getting a Cosigner

For those of you that are in need of a more favorable post-bankruptcy loan than you currently qualify for, a cosigner may be a viable way to achieve that end.

Cosigners are third parties that have good credit who vouch for your loan. If you don't pay your loan back, cosigners give lenders the ability to go after them.

Given the amount of risk that cosigners undertake in putting their name on your loan, you'll probably need to find a close friend or family member to help you out.


7. Be Patient

Everything from seeking a post-bankruptcy loan to managing one becomes a lot easier if you're willing to be patient. We appreciate that it can be frustrating to not get your hands on the amount of money that you used to. It can also be disappointing to see application rejections for the first time in your life.

Do what you can to set that frustration aside and appreciate that the first few years after bankruptcy are about reinventing your image to lenders. With that state of mind and a willingness to roll with the punches, your credit and spending power will be back to normal in no time.


Getting a Loan After Bankruptcy Is Easier Than You Think

We've hit you with a lot of information that may have you feeling overwhelmed. What we'll say is that bankruptcy filers have a much easier time getting their hands on borrowed money than they think they will.

The hard part isn't getting a loan after bankruptcy. It's trying to responsibly manage that borrowed money to avoid bankruptcy again.

Keep that in mind as you plan your next steps and feel free to read more of the business and finance content that we have up on our blog for additional information.

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