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Personal Loans after Bankruptcy

These days, taking out loans is a part of daily life for many Americans. After all, every time we swipe our credit cards, we're really taking out a loan we'll repay later. So it's no wonder that many people wonder about how filing for personal bankruptcy will affect their ability to get personal loans.

This page explains how personal loans after bankruptcy tend to work and offers pointers for appealing to lenders.

If you're struggling with debt today, you can learn how bankruptcy could give you a fresh start by speaking with a bankruptcy attorney. Simply fill out the form to arrange a free, no-obligation consultation with a bankruptcy lawyer near you.

Bankruptcy, Loans, and the Myth of "Ruined Credit"

One reason people worry about their ability to get personal loans after a bankruptcy filing is that there’s a myth out there that says that filing for bankruptcy will ruin your credit for 10 years. Luckily, this is rarely the case. Here's what typically happens in bankruptcy:

  • You have serious debt: Before actually deciding to file for bankruptcy, a person accumulates some debt. And that debt is usually accompanied by some missed payments, delinquent loans, and maybe a few hassling calls from creditors. All these things generally have a seriously negative impact on your credit.
  • You file for bankruptcy: Whether you file under Chapter 7 or Chapter 13, choosing bankruptcy may give you a fresh start financially. For one thing, it may either allow you to catch up on your debts or have them discharged (that is, excused) entirely.
  • You take a financial education course: Before you're eligible to receive a discharge from the bankruptcy court, you'll complete a financial management (sometimes called "debtor education") course, which will explain some techniques for staying out of debt and managing your money in your post-bankruptcy life. While it's true that the fact that you filed for bankruptcy will appear on your credit report for seven to ten years, its significance will lessen with time and your more recent (hopefully positive) financial moves will become more important.

How Does My Credit History Help Me Get Loans?

When you apply for a personal loan, the lender looks at a copy of your credit report and possibly your credit score. These two documents include information about your behavior with credit.

Those with "good" credit tend to get better rates on loans and qualify for larger total loan amounts. Those with "bad" credit tend to qualify for lower total loan amounts and have higher interest rates. So what makes credit good or bad?

  • What makes credit good: Making payments on time, having some credit available (i.e. not being "maxed out" on loans), having a variety of types of credit and having a long credit history generally all factor into a person's "good" or strong credit.
  • What makes credit bad: Falling behind on payments, being "maxed out" on loans, having limited types of credit and having loans in delinquency tend to make credit "bad" or weak.
  • How bankruptcy affects credit: While filing for bankruptcy is definitely a "negative" credit report action initially, for most bankruptcy filers, it's not much worse for their credit than having lots of delinquent loans or being maxed out on credit cards. In fact, assuming you adopt the positive financial habits suggested in the financial management course, bankruptcy may ultimately help you improve your credit.

Find Out if Bankruptcy Is Right for You

If you want to take steps to improve your financial strength, filing for bankruptcy might ultimately help you.

To learn more about the effects of filing bankruptcy and what to expect after personal bankruptcy, speak with an attorney in your area. Simply fill out the free case evaluation form below to connect with a bankruptcy lawyer near you today!