Like most financial decisions, discharging a bankruptcy has multiple facets. On the one hand, you can free yourself from accumulated debts. In many cases, you’re even able to retain your assets. On the other hand, your credit score is negatively affected. And, for the up to a decade following a bankruptcy, debt accounts still appear on your credit report.
Due to these factors you might feel your financial opportunities are limited. However, you certainly don’t need to wait 10 years before beginning to rebuild your credit. In fact, it’s even possible to get approved for credit cards or secure a personal loan with a bankruptcy. Once approved, using these resources helps rebuild your credit.
How Does a Bankruptcy Affect Your Credit
A bankruptcy lets you reach a healthier debt to income ratio by reducing or restructuring what you owe. As a result, your overall financial health may actually improve following a bankruptcy. While it’s challenging to secure a personal loan with a bankruptcy, it may be a challenge you should accept. Creditors look at multiple factors when considering your fitness for a loan though.
So, it’s important you understand the complete picture of your financial health to increase your chances of success.
Chapter 13 – Bankruptcy
Chapter 13 bankruptcy restructures debts to allow repayment throughout a period of three to five years. Because you are repaying your debts, creditors tend to look more positively on this type of filing. If you’re able to secure a personal installment loan, on-time payments help build a current, positive credit history. You don’t need to wait until your existing debt repayments are complete to seek out a personal loan with a bankruptcy.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy eliminates your debts. First though, it requires you to liquidate some of your property to pay back a portion of what you owe. This type of discharge stays on your credit report for longer than a Chapter 13 bankruptcy. Typically creditors judge this type of filing less favorably. With that being said, it’s still possible to secure a personal loan with a bankruptcy.
How is a Personal Loan Different from a Credit Card?
You might use a credit card for everyday purchases or regular expenses, like utilities, groceries or gas. It’s best to repay your credit card balance in full each month if you want to strengthen or maintain your credit score.
Unlike a credit card, a personal loan offers more available credit at a lower interest rate. It’s best used to consolidate debts or take care of a large expense. A personal loan also offers the ability to repay over an extended period of time, without penalty.
How Do You Apply for a Personal Loan with a Bankruptcy?
When you shop personal loans you’ll access a marketplace of lenders. While some creditors won’t consider approving a personal loan with a bankruptcy, there are other channels that specialize in offering personal loans for bad credit.
Credit Unions, in particular, are often willing to lend to applicants with a bankruptcy or other credit issues. In order to approve you, a credit union will want documentation of reliable income. Before applying, you should check your credit report and secure pay stubs or W2 forms.
Filling Out Your Personal Loan Application
There are some details you’ll want to organize before applying for a personal loan following a bankruptcy.
Gather your identity information and paperwork to verify all sources of income. You’ll want to have stable, full-time employment before applying for a personal loan. Keep your license handy, too.
Decide Your Needs and Ability to Repay
What will you use the money for? How much do you need to borrow? What are you realistically able to repay? Decide on the answers to these questions before applying. If you’re approved, carefully consider the terms offered and appraise yourself of the total, including fees.
When shopping for personal loans, you may have multiple offers available to choose from. Compare fees, interest rates, and Annual Percentage Rates. It’s common for personal loans with a bankruptcy to carry high interest rates. It’s important to choose carefully to get the best possible loan.
You Can Get a Personal Loan with a Bankruptcy
While filing a bankruptcy is never a pleasant process, there is hope for rebuilding your credit score. A bankruptcy can lower your credit score and lessen your creditworthiness. But, it’s possible to strengthen your credit with a credit card or personal loan. A personal loan typically has a lower interest rate than a credit card and you won’t have to repay the full balance quickly.
When shopping for personal loans, a credit union may offer your best option for getting approved. Consider your current credit reports and income before applying for a personal loan. If you decide it’s the right time to apply, carefully consider your options. Be sure to comparison shop and read the fine print before agreeing to any terms.