Getting a Personal Loan After Bankruptcy

Chapter 7 and Chapter 13 in brief

The chapter matters for a loan application in two ways. It decides when you can borrow on your own, and it is printed on your credit report: the Fair Credit Reporting Act requires a bureau that reports a bankruptcy to name the chapter, when the source provides it.

How long lenders will see it

Under 15 U.S.C. 1681c(a)(1), a consumer reporting agency may not report a bankruptcy case more than 10 years after the date of the order for relief or adjudication. That is a ceiling, not a minimum. The limit does not apply to reports used for a credit transaction of $150,000 or more, so a large mortgage application can bring up an older case.

A month or two after discharge, pull your reports and check every account that was part of the case. A debt wiped out in bankruptcy should not appear as still owed. If one does, you can challenge it; Funditia walks through disputing report errors. Our check your credit first step covers the free reports.

Borrowing during a Chapter 13 plan

The federal courts' Chapter 13 guide says a debtor may not incur new debt without consulting the trustee, since extra payments can sink the plan. The Bankruptcy Code backs this with a consequence for lenders: under 11 U.S.C. 1305(c), a claim for a consumer debt taken on after filing can be disallowed if the lender knew or should have known that the trustee's approval was practicable and was not obtained.

1. 1 Talk to your bankruptcy attorney or the trustee first. Explain what the money is for, such as a car repair you need to get to work.
2. 2 Ask what the trustee requires: a written request, a budget, the proposed loan terms. Local court rules can add steps.
3. 3 Get the approval in writing before you sign the loan, and keep a copy for the lender.

Reaffirmation agreements after Chapter 7

A reaffirmation agreement is a promise to keep paying a debt, often a car loan, that would otherwise be discharged. It makes you personally liable again. It must be signed before discharge, in writing and filed with the court. If you had no attorney, the judge must approve it, and the court may refuse when your income after expenses cannot cover the payment.

You can cancel a reaffirmation by notice to the creditor at any time before discharge or within 60 days after the agreement is filed with the court, whichever is later. The Code also lets you repay any debt voluntarily without reaffirming it.

Rebuilding before the next loan

New, small accounts paid on time are what change your file. Two common tools:

• Secured credit card. Your deposit becomes the credit line. Use a small part of it and pay in full each month.
• Credit-builder loan. A credit union or CDFI holds the loan amount in an account while you make payments, then releases it to you. Confirm it reports to the bureaus.

The table shows what time and price do. The figures are worked examples from the amortization formula, not offers.

Waiting until on-time history lets you qualify at a lower rate can save over a thousand dollars on a modest loan. Your state also caps what a licensed lender may charge; see state rate limits.

Scams aimed at people after bankruptcy

The Federal Trade Commission says accurate negative information on your credit report cannot be removed by any company, and that companies promising to hide a bankruptcy are running a scam. Other warning signs it lists:

• a demand for payment before any work is done; the FTC says charging before helping is illegal;
• advice not to contact the credit bureaus yourself, or to dispute information that is accurate;
• an offer to set up a "new credit identity" or to file a false identity theft report;
• a loan that requires a fee up front, before any money reaches you.

Report suspected scams at ReportFraud.ftc.gov, and check any lender's license with how to verify a lender.

Questions people ask