Personal

Can You Apply for a Personal Loan If You’ve Declared Bankruptcy in the Past?

8/18/20 Ricky Baizas

You never know when you might need a personal loan. When life throws you financial curve balls, the option of acquiring a loan is a welcomed foothold while you work to regain stability. But what if you have declared bankruptcy in the past? Is there hope for continued financial assistance?

The good news is that you can still be approved for personal loans after a bankruptcy discharge. The not-so good news is that the process can be fraught with caveats and potential setbacks. By understanding the process behind applying for personal loans for people with bankruptcy, you can plan the steps necessary to apply and get approval for loans in the future. 

Lasting Scars of Bankruptcy 

For many who are overwhelmed with debt, bankruptcy is the answer — like a financial reboot. People who declare bankruptcy are at the extreme limits of their ability to handle their debt-to-income ratio. They have missed mortgage and credit payments with dizzying regularity to the point where they cannot function under the weight of creditor demands. 

With bankruptcy, a person can trigger an automatic stay that halts creditors from garnishments and enforces a cessation on all creditor communication, lawsuit threats, and attempts to repossess property. 

Bankruptcy can be the lifeline to save a person from crippling debt and give them a second chance — but it can also haunt you. If you have declared bankruptcy, your credit score will likely be severely damaged. Bankruptcy will stay on your credit report for seven years with a Chapter 13 bankruptcy, or 10 years with a Chapter 7 bankruptcy. A combination of a low credit score, plus a recent bankruptcy may make you seem like a higher risk and make it harder to rebuild strong credit and get approved for financing. 

What Loans Are Available Post-Bankruptcy?

It is common that people find themselves in need of a personal loan from time to time — even those who have declared bankruptcy. If an emergency strikes where you need access to funding because you’re strapped for cash, access to a  personal loan may be your saving grace. The last thing a person may want to do after discharging a mountain of debt is accumulate more, but paying off medical bills, securing a new vehicle for work, or simply taking on any small commitment that can easily be paid back to raise that damaged credit score from your bankruptcy history are reason enough to get back in the saddle and rebuild your financial reputation. 

One option that credit challenged borrowers have in terms of obtaining financing is an unsecured personal loan. Even then, there are no guarantees that you will get approved for this type of loan. While it is possible to acquire an unsecured loan if you have a less than desirable credit history, it is in your best interest to do your due diligence prior to applying for one of these loans. If you find a lender that you want to work with, contact them and ask them what their minimum requirements are, as there are a number of factors that contribute to your ability to be approved (employment history, income, time at your current address, etc). 

How to Increase Your Chances of Loan Approval 

If you find a lender willing to give you a loan almost immediately after bankruptcy discharge, be careful. These loans usually bear extremely high interest rates and fees that could bring you right back down the path of financial ruin again. Be on the safe side and prepare in advance by having a plan to pay off the loan as quickly as possible if and when you absolutely do need the assistance of a personal loan.

Preparation for applying for a reasonable unsecured personal loan involves three general steps:

 

  • Wait and Rebuild: There’s nothing like a good waiting process. Let your bankruptcy age, if possible, and give your credit a chance to improve. Steps you can take to improve your credit score after bankruptcy include regularly checking your credit rating with a service like Experian or Credit Karma. You can also get a secured or retail credit card, but make sure you just make small purchases regularly and pay them off quickly. 

 

Another great way to build credit is to request that your on-time rent and utility bills be reported to consumer credit bureaus. This process of rebuilding your credit could take three to five years, depending on the classification of bankruptcy, but we strongly recommend it as the first step you take. 

 

  • Get Documentation Together: After you have spent time repairing your credit to the best of your ability, you’ll need to pull together the necessary documentation that the lender will need to approve an unsecured personal loan. You will need information on all your income sources, because you want to convince a lender you can repay the loan with timely monthly payments. Another major focus will be convincing a lender you have changed your past financial habits. Ways to provide this proof will be showing an on-time payment history and existence of a sufficient savings account. 

 

Most lenders also request identification, proof of address, income and employment verification, and information on desired loan use and loan terms before commencing with the application process.

 

  • Prepare for Rejection: Although some lenders specialize in bankruptcy cases, and others approve people with lower credit scores, brace yourself for the reality that you may be denied. You may have the best chances of getting approved if you apply in person at a credit union or community bank where you have an established banking relationship, especially if you want to avoid high fees and high APRs. If you are rejected, you could still possibly apply with the help of a cosigner or look into loan options that require collateral, such as a savings account or auto equity. [LINK to March Blog “What Is a Cosigner?”]

Keep Your Chin Up and Your Credit Stable

If life trips you up with financial challenges, you do have options for loan approval — even with a discharged bankruptcy showing up on your credit. If you have a discharged bankruptcy in your past or have experienced a seven-year lapse since a filed or dismissed bankruptcy, you may qualify for a personal loan with LoanMe. 

Call 844-704-0556 for more information about our personal loans for discharged bankruptcies and possible solutions for your situation. Click here to apply for a loan.

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