Loans for People in Bankruptcy: Is It Possible to Get One?

Although bankruptcy is a tough time in one's life, it's not a final battle you lose. Sometimes declaring bankruptcy is the best option available, and it can happen to the best of us at some point. But life goes on, and you're not alone on this route. Even if your new legal status results in a poor credit score, there are still unsecured loans for people in bankruptcy that you can turn to. Let's find out how you can get extra cash for your personal needs in or after bankruptcy.

What Is Bankruptcy?

Bankruptcy is a legal status that an individual or a company gets after they become insolvent. This status is typically imposed by a court order. If a debtor finds out that their debts have become unmanageable, they can declare bankruptcy.

However, this process is not only about long-awaited debt relief. Although most of your obligations (except for student loan debt, child support, criminal fines, and taxes) may be discharged, filing for bankruptcy comes with multiple unwanted consequences. Their specifics depend on the type of bankruptcy you file for.

Types of Bankruptcy

Those who find their debts unmanageable typically have two options: a Chapter 7 bankruptcy and a Chapter 13 bankruptcy. Here are the major differences between them:

Chapter 7 refers to the liquidation of your assets. Your non-exempt property will be sold, and the funds will be used to pay off as much outstanding debt as possible. However, not all property can be liquidated. Exempted items include part of your equity in a home (primary residence only), an automobile, personal items, clothing, and things you need for work. After the process ends, you will get debt relief. This type of bankruptcy stays on your credit report for up to 10 years;
Chapter 13 is a type of bankruptcy that provides for debt payment postponement with a new three-to-five-year repayment plan. This way, you will be able to pay smaller amounts within longer terms and keep your assets. Chapter 13 has a shorter-term impact on your credit history as it stays on your credit report for no longer than 7 years.

How Does Bankruptcy Affect Your Credit Score?

Both Chapter 7 and Chapter 13 bankruptcies will be displayed in your credit report and stay there over a long period. When you file for bankruptcy, it ruins your credit score, making it harder to get a personal loan or a car loan in the future. Borrowers with bad and poor credit scores who will get approved for personal loans are more likely to get unfavorable loan terms.

More than that, you can be denied a loan. Even if you boost your credit over some time after declaring bankruptcy, some lenders may not want to deal with you until this status stays in your credit report.

Is It Possible to Get Unsecured Personal Loans for Bankrupts?

Banks and credit unions typically have strict requirements when it comes to unsecured debt. Your credit score is one of determining factors they look at when they process your loan request. Thus, you can at least experience challenges if your credit score falls below a lender's minimum requirements.

If you haven't recovered your credit after bankruptcy, most lenders will either reject you or offer you less-than-favorable loan conditions. Even if you boost your credit, lenders will see your bankruptcy in a credit report for 7 to 10 years.

But it doesn't mean that you have no chance. Difficult is not a synonym for impossible. The longer it's been since your bankruptcy discharge, the higher your chances. However, you need to get ready to answer uncomfortable questions. Personal loan lenders may want to know your reason for filing for bankruptcy. They will also be more focused on your current financial situation.

If you need an emergency loan with bad credit after bankruptcy, start with credit unions and local banks. Shop around to find reputable loan providers that are willing to work with borrowers with damaged credit. Don't expect to get favorable loan terms right away. You can also consider credit-builder loans or guaranteed installment loans for bad credit from online lenders.

Finding a Bankruptcy Loan

Although your options are limited when it comes to loans for bankruptcies, it doesn't mean there's nothing to choose from. You need to find a bankruptcy-friendly loan provider that doesn't discriminate against anyone who has damaged credit. Luckily, there are multiple lenders that fall into this category.

At the same time, you should avoid predatory lenders. Although they advertise bankruptcy options and loans with no job, they also set exorbitant interest rates, making people end up with unmanageable debt. Here are some tips on finding a reasonable bankruptcy loan.

Seek credit counseling. Before you get a loan after bankruptcy, talk to a professional that will help you estimate your current situation and offer available alternatives if a personal loan is not the best option for you at that point;
Compare options. Many lenders allow you to pre-qualify for a loan without affecting your credit score. This will help you understand your options and have an idea about potential loan terms. Then, you can compare several offers in terms of interest rates, fees, and repayment terms;
Bring a co-signer. You will be able to get better loan terms if you bring an individual with good credit and a high income. Keep in mind that your co-signer will also be responsible for repaying the debt.

How to Get Personal Loans with Bankruptcy?

The process of getting personal loans with bankruptcy doesn't differ much from a regular personal loan application process:

Request your annual credit reports from major credit bureaus. This will help you understand your credit score and borrowing opportunities.
Find a bankruptcy-friendly lender. Pre-qualify through several loan providers and choose the one that offers better terms.
Ensure you meet a lender's requirements and gather all the required documents. The set may vary by lender.
Visit a lender's store and fill out an application form. Some lenders may also allow you to apply online from home.
Get a loan decision. A lender will contact you by phone or via email after it checks your creditworthiness. If positive, you can get the funds after accepting an offer.
Read and sign a loan agreement. Keep in mind that your signature means that you accept all the terms and conditions, so read your contract carefully, including the fine print.
Receive the funds. Most lenders will make a direct deposit to your active checking account. It may take from several hours to several business days, depending on the lender.

Alternatives to Personal Loans for Bankrupts

Even if you get rejected for a personal loan after bankruptcy, there are plenty more fish in the sea. Consider several alternative options that can help you go through these tough times.

Secured Personal Loans

A secured personal loan is an option that requires an additional guarantee in case a borrower defaults. This way, a lender will be sure it gets the money back even if you fail on your loan payments. Secured loans require collateral in the form of valuable assets. It may be a car, a house, a balance of your savings account, and more. A secured loan comes with more relaxed credit score requirements and fits borrowers with bankruptcy or other credit damages.

Cash Advance Apps

A cash advance app allows you to borrow money fast any time you need it. Just install a suitable app on your smartphone and pass a simple application process. Cash apps typically offer limited loan amounts (often up to $300 or $500) that must be repaid by your next paycheck.

Payday Loans

A payday loan is considered not the best option for people in bankruptcy and should be considered cautiously. This happens because of its sky-high cost and limited repayment terms. Payday loan borrowers must repay the funds in one lump sum by their next paycheck. Although the amount usually doesn't exceed $1,000, many borrowers end up getting another loan to cover the previous one.

As payday lenders don't run hard credit checks, payday loans are fast and accessible with any credit. They are often advertised as 'no denial payday loans from direct lenders'. You can get the funds in your bank account within one business day. Native Americans can also apply for bad credit tribal loans offered by tribal lenders. These cash advances are typically more affordable but can still be expensive.

Payday Alternative Loans (PADs)

A payday alternative loan is an option offered by a credit union. It is similar to a regular payday loan but with an annual percentage rate capped at 28%. Also, PADs have longer repayment terms that can be up to 3 or 6 months. To get a PAD, you need to be a member of a credit union that offers such a product.

401(k) Loans

If you have a retirement savings account, you can borrow money from yourself. Loans against your retirement savings have multiple benefits. Their interest rates are usually low. More than that, the interest cost you pay turns to your retirement account, increasing the amount of your savings.

Home Equity Loans and Lines of Credit

Homeowners in bankruptcy can borrow money against equity in their houses. This is a risky option that can leave you with nothing if you don't repay your loan. However, this is also a way to get a relatively high loan amount in proportion to the equity you own. You can get either a loan or a line of credit, depending on the option that better meets your needs.

Alternatives for Personal Loans for Bankrupts

How to Rebuild Your Credit After Bankruptcy: Useful Tips

The best way to feel more confident about getting a personal loan after bankruptcy is to earn the lender's trust. You can do this by paying your bills timely and showing good financial behavior. Here are the steps to take.

Get a Secured Credit Card

Secured credit cards work similarly to regular ones but require a security deposit. The amount of the deposit often equals your credit limit. Then, you can pay by card within the available balance and make timely repayments. If you manage, an issuer can upgrade your secured card to a regular credit card. The deposit amount will be returned.

Apply for a Credit-Builder Loan

Credit-builder loans are loans that require you to make monthly payments upfront and then get a loan amount on hand. A lender opens a savings account and places the amount you pay each month into it. When the requested amount accumulates, you get access to the funds. Each of your on-time payments is reported to credit bureaus, boosting your credit score.

Pay Your Bills and Debts on Time

Having a positive payment history is the first and one of the most important steps you should take to fix your credit. If you show a lender that you can manage your bills and other obligations, it will be more eager to give you a personal loan with bankruptcy.

Bottom Line

Difficulties can happen even with the best of us, but there's always a way out. Although bankruptcy filing affects your credit score and serves as a red flag for some lenders, it's still possible to get an unsecured loan with this status. Just follow our recommendation to improve your chances. You can also consider available alternatives if you've been turned down by traditional lenders.

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