I have clients ask me all the time if they can somehow obtain an unsecured loan following a bankruptcy. The answer is of course yes but it is much more complicated than the short answer. It will take you some considerable time and effort to secure a loan with anywhere close to decent interest rates and terms. Your bankruptcy appears on your credit report for up to 10 years which is a huge red flag that you very well may skip out on the debts repayment. Also your bankruptcy will tank your credit score for some time to come which also effects interest rates. Once you have a bankruptcy appearing on your credit report you get moved into the high risk pool of borrowers, the sub prime category.
The good news is that getting and successfully paying off an unsecured loan following a bankruptcy can go a long ways towards repairing your credit. Of course this means not missing any payments nor being late not even once. If you take your time and prepare before you even apply for the loan you can hunt for the best possible rates and terms and hand in a strong application considering your post-bankruptcy status.
I would also like to point out that bankruptcy does not mean your credit is dead and buried. For most people access to one or more forms of credit is less likely to be an issue today than in years past. The Federal reserve did a study which showed that upwards of 90% of debtors who had their debts discharged via bankruptcy had access to one or more forms of credit within 18 months of having their debts discharged via bankruptcy. About 75% of borrowers with bankruptcies qualify for and obtain unsecured credit following a bankruptcy. Once your bankruptcy goes through you could in some cases see an increase in your credit score due to your debt to income ratio correcting itself, this happens for about 20% of people immediately following a bankruptcy.
The type of bankruptcy you applied for has an effect on your borrowing. With chapter 7 your debts are totally forgiven, but the bankruptcy appears on your credit report for 10 years. if you have done chapter 13 you will be required to pay back some or all of your debts, most likely over a 5 year period so your debt to income ratio will not be perfect. Yet chapter 13 is less credit damaging and only stays on your credit report for 7 years. Some lenders will lend to you right away after a chapter 7 bankruptcy.
When it comes time to apply for credit there are some things you can do to help the process as outlined below:
* Secure all 3 credit reports: Equifax, Experian, and Transunion and make sure that your debts that were cleared under chapter 7 show a zero balance or if you applied for chapter 13 that all debts appearing on your credit reports are accurate.
* Be prepared to explain to lenders why you even went bankrupt in the first place, and why this will not happen again.
* You will need to prove your income and current expenses so that you can show your ability to repay the new debt be it a loan or a line of credit. Have this information including pay stubs and banking information ahead of time.
There are plenty of lenders who love to offer loans or credit to those fresh out of bankruptcy. The main reason being it will be at least 7 years before you can apply for another bankruptcy so creditors are more likely to get their money back or at the least have a guaranteed window to attempt to collect on your debt should you default. They also target those fresh out of bankruptcy because most who have a fresh bankruptcy on their record do not object to higher interest rates and poor terms being grateful to have any credit. So while you can for sure obtain credit you are likely to face stiffer interest rates than what you are used to. I will again point out that repaying such loans will help you to rebuild your credit so it is often worth paying the higher interest rates, only however if the creditor reports to all 3 credit reporting agencies.
My best advice when wading back into borrowing post bankruptcy is to take your time and compare offers. You will find some reasonable offers, but you will find more often than not absurd offers with insane interest rates and terms. Just because you are recovering from bankruptcy does not mean you have to settle with poor credit products.