Many of our clients come to us concerned about whether or not they’ll be able to get loans if they file for bankruptcy. This concern is valid, particularly when we consider that most of us purchase cars and homes with loans!
The short answer to whether or not you can get a loan in bankruptcy is it depends.
Taking out loans while in bankruptcy is not expressly prohibited. Although, we caution you that it may not be a wise financial decision. Also, if you file for Chapter 13 bankruptcy you must first receive permission from the Bankruptcy Court.
Taking Out A Loan While In Bankruptcy
As noted above, taking out a loan while in bankruptcy is not forbidden, but it may be difficult. Your ability to get a loan during bankruptcy will depend on your specific financial situation. As with securing any loan, you will have to show that you have the requisite income to afford the loan payments. Also, the lender will look at your credit score to determine your credit-worthiness. Bankruptcy, as well as any missed payments, charge-offs, or judgments reporting on your credit report, can severely decrease your credit score.
Bankruptcy is a chance at a fresh financial start. We strongly urge you to consider exactly how incurring new debt, during or after bankruptcy, will affect you.
Taking out a loan while in bankruptcy, or shortly thereafter, may lead to paying a very high-interest rate and runs the risk of causing further adverse affects to your credit score.
Taking Out Loans While in Chapter 13 Bankruptcy
Chapter 13 bankruptcy creates a three to five-year repayment plan to pay back some or all of your debt. While in Chapter 13 you must ask permission of the Bankruptcy Court before taking out a loan, or taking on any new debts.
This process is fairly straightforward and not uncommon. For example, often debtors in a Chapter 13 will need to purchase a more reliable vehicle to ensure they can safely get their kids to school and get to work. In those cases, the Bankruptcy Court will look at the debtor’s circumstance and the Chapter 13 plan to determine if a loan can be taken out during the bankruptcy.
Taking Out A Loan After Bankruptcy
When you file for bankruptcy it demonstrates that you are taking control of your finances. Further, after a successful bankruptcy you will have erased all or most of your debts, giving you a favorable debt to income ratio. Oddly then, bankruptcy may make you a fairly desirable candidate to lend money to.
In fact, taking out an affordable car loan or getting a secured credit card may help you rebuild your credit after bankruptcy. We can discuss the specifics of how this works during our free consultation.
Take Full Advantage of A Fresh Financial Start
We believe in the fresh financial start bankruptcy gives to our clients. We strongly caution any debtor in bankruptcy, or just out of bankruptcy, to be cautious when taking out new loans for any reason.
At the Law Office of Barbara B. Braziel we file hundreds of Chapter 7 and 13 bankruptcy cases every year. But our clients are never just a number. You will not be left in the hands of a paralegal. You will have access to your attorney throughout your bankruptcy case.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.