Getting Personal Loans After Bankruptcy: A Complete Guide

Filing for bankruptcy can feel like hitting rock bottom financially. The process wipes your debts clean, but also decimates your credit score This makes getting approved for new credit extremely difficult, especially for big loans like mortgages or auto financing However, rebuilding your credit is possible with time and diligence. And in some cases, you may be able to qualify for a personal loan not long after your bankruptcy discharge.

In this complete guide, we’ll cover everything you need to know about getting a personal loan after bankruptcy. You’ll learn

• The different types of personal bankruptcy and how they impact your credit
• When and how to start applying for personal loans post-bankruptcy
• Tips for finding the best loan offers after bankruptcy
• Rebuilding credit quickly to qualify for better rates/terms

Let’s start with understanding the most common types of personal bankruptcy filings.

Overview of Personal Bankruptcy Chapters 7 and 13

There are two primary kinds of personal bankruptcy – Chapter 7 and Chapter 13 Here’s an overview of how they work

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is also called “liquidation bankruptcy.” It wipes out many of your debts completely, with some exceptions like student loans and tax debt.

The court appoints a trustee to oversee your assets and sell off any non-exempt property. The proceeds then go towards paying down a portion of what you owe. Any remaining debts are discharged.

The main pros of Chapter 7 bankruptcy are the ability to wipe out unsecured debts and stop foreclosure or vehicle repossession. However, the cons are steep – you could lose property, it destroys your credit for years, and you can’t file again for 8 years.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to keep your property while repaying a portion of debt over 3-5 years. You make monthly payments to creditors through a court-supervised repayment plan.

This avoids liquidation, but requires dedicating all disposable income to debt repayment for years. You must prove to the court you can make these payments consistently. If you fail to do so, your case could get converted to a Chapter 7.

The pros are keeping property and having some debts partially or fully forgiven. Cons are the repayment plan rigor and impacts to credit.

As you can see, both types of bankruptcy have lasting impacts on your finances and credit. Next, let’s look at rebuilding credit and when to apply for loans after bankruptcy.

How Long to Wait Before Applying for Personal Loans Post-Bankruptcy

Bankruptcy damages your credit, which makes qualifying for new financing difficult. The good news is your credit shouldn’t be permanently ruined. With some time and diligent work, you can begin rebuilding your credit profile.

Experts recommend waiting at least 12-24 months after your bankruptcy discharge before applying for a personal loan. There are some exceptions – for instance, you may qualify for secured debt like an auto lease earlier than that.

But when it comes to unsecured personal loans, it’s best to wait a year or two for the worst impacts to your credit to fade. You want to demonstrate you can manage credit responsibly again with on-time payments before applying.

Here are general guidelines for how long to wait before applying for a personal loan after different bankruptcy types:

• Chapter 7 – At least 12 months, ideally 24 months
• Chapter 13 – 12 months of consistent trustee payments increases chances
• Discharged/Dismissed – 12-24 months recommended

The longer you wait, the more time you have to rebuild strong credit. Actions like taking out secured cards, becoming an authorized user, or utilizing credit builder loans can bump your credit scores higher.

Higher scores qualify you for better loan terms. However, waiting at least a year is key regardless of your bankruptcy type. Next, let’s look at steps to take when it is time to apply.

Tips for Finding the Best Personal Loans After Bankruptcy

When the time comes to start applying for personal loans, follow these tips to find affordable loan offers:

• Check Credit Reports – Make sure all discharged debts show a $0 balance owed. Dispute any errors with bureaus.

• Shop Around – Compare loan options from multiple online lenders, banks, and credit unions. Avoid payday loans.

• Focus on Secured Debt – Lines of credit or personal loans secured by an asset you own are easier to qualify for.

• Bring a Co-signer – If you have a family member or friend with good credit, co-signing improves your chances.

• Know Your Credit Score – Checking your current credit score helps set expectations for rates/approvals.

• Explain Your Situation – If asked, briefly explain the situation that led to bankruptcy and your plan to rebuild credit.

• Start Small – Accept a lower loan amount or shorter repayment term if offered. You can request to increase later.

• Make All Payments – Stay diligent in making full on-time payments to continue boosting your credit.

Finally, let’s look at the step-by-step process for rebuilding credit quickly after bankruptcy.

How to Rebuild Credit Quickly Post-Bankruptcy

Rebuilding strong credit quickly after bankruptcy takes effort, but is doable. Here are actionable steps you can start taking to rebuild and boost your credit scores:

1. Get a Secured Credit Card – Secured cards require a cash security deposit that acts as your credit line. Charge small amounts monthly and pay off balances in full. This shows responsibility.

2. Become an Authorized User – Ask a friend or family member with good credit to add you as a user on their oldest credit card. Their positive history boosts your profile.

3. Use a Credit Builder Loan – Credit builder loans place money in a savings account monthly. Payments are reported to help rebuild credit.

4. Limit Hard Inquiries – Too many credit applications can negatively impact your credit, so only apply for what you need.

5. Pay Down Balances – Keep credit utilization low by paying down balances as much as possible each month.

6. Monitor Credit Reports – Check reports regularly and dispute any errors with bureaus. Maintain good standing on all debts.

7. Be Patient – Rebuilding credit takes time. Stick with the plan for 1-2 years for the best results.

Following these best practices will help your credit begin to steadily improve and recover over time. The longer you demonstrate responsible habits, the higher your scores will climb.

Finding the Best Personal Loans After Bankruptcy

Though qualifying for financing may seem daunting after bankruptcy, restoring your credit and getting approved is possible with some time and discipline. Follow the guidance above on rebuilding credit responsibly for 1-2 years before applying.

Shop around extensively for loan offers when the time is right. Secured debts or having a cosigner can increase your chances for affordable loan approvals post-bankruptcy. Monitor your credit and keep diligently making on-time payments. Maintain this for at least 12-24 months and your credit situation will vastly improve.

With a sound credit repair strategy, you can qualify for great personal loans after bankruptcy. Don’t get discouraged – take it step-by-step and your credit will recover before you know it. Stay focused on rebuilding good habits and you’ll be able to finance your needs.