When bills are piling up and you feel in over your head financially, you may not be looking at the silver lining that comes with filing for bankruptcy. However, in a very real way, filing for Chapter 7 or Chapter 13 bankruptcy is like a financial “do over.” So, here’s the scoop on borrowing money after bankruptcy.
As soon as you make the decision to file for bankruptcy protection, you can immediately create a strategy to start rebuilding your credit. It won’t be the easiest thing you’ve ever done, but it’s far from impossible! You will likely have to use cash more than you did before, but you may be surprised how quickly banks will offer you secured lines of credit. Others might agree to loan you money but at a very high interest rate and/or require a larger down payment. That said, borrowing money after bankruptcy is very possible and can happen much sooner than you expect.
Borrowing Money after Bankruptcy: Chapter 7
If you filed for Chapter 7, you’ll be able to borrow money again once the process is completed. It will be hard to get credit at first, but it won’t be impossible for two reasons. First, after filing for Chapter 7 liquidation bankruptcy, your debt-to-income ratio will immediately be lower. Second, since you can’t file for another Chapter 7 bankruptcy for eight years, lenders consider you a better risk. This doesn’t apply to a mortgage loan, though, as typically, you won’t be able to obtain a mortgage within two years of filing Chapter 7.
Borrowing Money after Bankruptcy: Chapter 13
Borrowing money after bankruptcy when filing for Chapter 13 is a little more complicated. Because you’ve committed a portion of your income toward repaying your current creditors over three to five years, the court has to approve any new debt you take on during that period. If you can make it clear why the loan is necessary, and if you have been following the Chapter 13 payment plan, a judge may approve the loan request. Expenses that courts typically allow are for a vehicle if one is not available to you and a mortgage if you can show that buying is better financially for you than renting.
One way to improve your chances of getting a mortgage loan after bankruptcy is to go through the Federal Housing Administration. Standards under FHA are more lenient than traditional mortgage lenders and down payment requirements are as low as 3.5 percent of the purchase price.
It will take time to rebuild your credit worthiness. Marc Aaron Goldbach, Esq. of the Goldbach Law Group, an experienced bankruptcy attorney in Los Angeles County, has some advice for consumers looking to re-establish credit. “Don’t try to borrow too much too soon, and make timely payments on a couple of lines of credit to build up your credit score. Stick with it, and soon you’ll be able to get better terms and lower interest rates.”
A bankruptcy filing will remain on your credit report for several years, but by improving your credit–and using credit wisely—you may be able to borrow money much sooner!
If you have questions about borrowing money after bankruptcy, contact our experienced bankruptcy attorneys here for a free consultation.