Our Guide: Steps on How to Get a Personal Loan after Bankruptcy

August 29, 2019

What does filing for bankruptcy entail? Simply put, bankruptcy is a legal process through which people or other entities may seek relief from some or all of their debts. If you can no longer pay your debts to creditors, you have no choice but to file for bankruptcy.

There are two types of bankruptcy. The first one is Chapter Seven bankruptcy, and it allows the court to liquidate all of your assets to meet your obligations. All your debts will be wiped out. The second one is Chapter Eleven bankruptcy, and it entails putting a court-ordered repayment plan into place. The plan states that you must pay your debts within three to five years. It will drop off your credit in seven years.

Bankruptcy is a sad situation. Not only will it affect your credit for the next seven to ten years, but it won’t be easy for you to get loans. But despite the circumstances, you need to look on the bright side.

The good news is that you can still apply for a personal loan after you declare bankruptcy. Sure, it may not be easy for you to do so. Chances are you might have to pay a higher interest rate. However, take comfort in the fact that it’s possible. The following steps will help you navigate the situation. Here’s what you need to know about getting a personal loan after bankruptcy.

Getting Personal Loan After Bankruptcy

Soon after bankruptcy, you can get ready to apply for a personal loan. Below are some of the things you need to do:

Credit Report: First off, you need to obtain a copy of your credit report from the credit bureau. Make sure that the information in it is accurate.

Proof of Income: Second, you need to prove that you have a steady source of income when you’re applying for a loan. Make sure to obtain your pay stubs and other documents showing you now have sufficient income to pay back the loan.

Letter of Explanation: Third, you have to prepare a letter explaining why you had to declare bankruptcy and how you’re trying to get back on your feet.

Avoiding High Rates and Fees

When applying for a personal loan, it’s expected that you might have to pay higher rates. However, you should still be careful when it comes to that. Therefore, you need to watch out for payday lenders and others who say they don’t do credit checks. You don’t want to get into the same situation this time around. If you are having a hard time looking for a better personal loan, you should look for alternatives instead.

Alternatives to Personal Loan

If you can’t qualify for a personal loan after declaring bankruptcy, here are three things you might want to consider as an alternative to a personal loan:

Credit-builder loan: You can open a credit-builder loan, as some smaller financial institutions will allow you to borrow small amounts. Once you and the lender come to an agreement, they will deposit the amount you are approved for into your account. In exchange, you repay the loan and the interest over time. Make sure the institution conducts regular reports to the credit bureau.

Secured credit card: You can consider getting a secured credit card. You will be required to provide cash which will serve as collateral. Many secured cards report to the credit bureaus. This will help you build your payment history over time.

Co-signing a loan: You can co-sign with a friend, a spouse, or a family member who is willing to join you in taking responsibility for the loan. Lenders will look at his or her credit history and score instead of yours. In the end, this is a great way for you to get a loan even after you’ve declared bankruptcy.