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Bankruptcy Loans: How To Get A Loan After Bankruptcy

Miranda Crace8-minute read
UPDATED: June 02, 2024


A person or business may declare bankruptcy if they can’t pay off their outstanding debts. But, bankruptcy can seriously damage your credit score, and it stays on your credit report for up to 10 years. Taking out a loan after bankruptcy can be tough, especially when personal loan approval largely depends on your credit score.

Getting a loan post-bankruptcy is possible, though.

Let’s walk through how you can qualify for an unsecured personal loan after bankruptcy. In addition, we’ll break down some other financing options.

Can You Get A Personal Loan After Bankruptcy?

You can still qualify for an unsecured personal loan after bankruptcy, but you’ll have to accept some unavoidable realities:

  • You may have a higher interest rate.
  • Your lender may charge higher fees.

Your interest rate will be largely determined by your credit score, which inevitably takes a hit after filing for bankruptcy. A bankruptcy on your credit report tells a lender you failed to repay debt in the past. If a lender approves your loan, they could charge an elevated interest rate since they deem you as a high-risk borrower.

Lenders that approve you for a loan after you file for bankruptcy may also charge a higher origination fee. This guarantees a return on their investment in case you default or otherwise fail to pay them back in full.

Getting a personal loan has never been easier.

The Rocket LoansSM application process makes borrowing simple.

How Bankruptcy Affects Getting A Loan

Many factors can affect your eligibility for financing after bankruptcy. Let’s examine them in-depth.

The Type Of Bankruptcy You Filed

Individuals can file one of two types of bankruptcy. The two types are structured differently and can have different effects on your loan qualifications. Regardless of which bankruptcy you file, you can’t apply for a personal loan until your debt is discharged.

If you qualify for Chapter 7, your debt is discharged in a matter of months. Chapter 13’s repayment plan, meanwhile, stretches multiple years.

Chapter 7 Bankruptcy

An individual or business can file Chapter 7 bankruptcy, which typically discharges debt in 6 months or less. For this to happen, you must sell assets and property to repay your outstanding debt. Certain assets, such as a car, may be exempt, however. You must also pass a means test to prove you make less than the median household income in your state.

Chapter 13 Bankruptcy

People, but not businesses, may file for bankruptcy under Chapter 13, or “reorganization bankruptcy.” A court-ordered repayment plan reorganizes your debt to make managing your monthly payments easier. This plan usually lasts 3 – 5 years. It may allow you to keep your assets and property if you can fully repay your debts in the allotted time, after which your debt is fully discharged.

The Amount Of Time Since You Filed For Bankruptcy

A bankruptcy can stay on your credit report for up to 10 years after you filed, and it could deter some lenders from approving you for a loan. Whether a lender approves you for a loan can also depend on the type of bankruptcy you filed. A Chapter 7 bankruptcy stays on your credit report for 10 years, but a Chapter 13 may go away after 7 years.

The State Of Your Credit Score

As mentioned before, your credit score and credit history have a lot to do with your ability to get a personal loan. Bankruptcy can significantly lower your credit score. Some lenders may see the bankruptcy and decide you’re too big a risk to approve. If you’re approved, you’ll need a credit score of at least 650 to qualify for a good interest rate.

If your credit score is too low to qualify for a good rate, taking steps to improve your credit before applying for a loan may be best.

How To Get A Personal Loan After Bankruptcy

Regardless of whether you’ve ever filed for bankruptcy, you’ll typically follow the same basic process for getting a personal loan. Here’s a breakdown:

  1. Check your credit report. Since your credit score significantly influences your approval interest rate, review your credit report first to see if now is the right time to apply.
  2. Decide your loan amount. Whatever you need the funds for, make sure you’re borrowing the amount you need. Most lenders offer $1,000 – $50,000 for a personal loan.
  3. Shop around and compare lenders. Check out multiple lenders and compare their interest rates and loan repayment terms to find the best deal.
  4. Get prequalified and choose a lender. Without affecting your credit score, you can get prequalified with multiple lenders for the best estimate of the interest rate and repayment term you’ll receive from them. Once you find the most attractive loan offer, choose your lender.
  5. Submit a full application. Fill out a full application and submit it. This may involve a hard credit inquiry, which will lower your credit score slightly and temporarily.
  6. Wait for an approval and receive your funds. Approval and dispersal on a personal loan can take a few business days. Shortly after you’re approved, your funds will show up in your bank account. Rocket Loans℠ can offer same-day financing under special circumstances.1

Getting a personal loan has never been easier.

The Rocket LoansSM application process makes borrowing simple.

Unsecured Personal Loan Alternatives After Bankruptcy

Depending on your situation, an unsecured personal loan may not be the right choice for you after bankruptcy. Instead, one of the following loan options might suit you better.

Secured Personal Loans

The type of personal loan you want is an important factor in getting a loan after bankruptcy. Most personal loans are unsecured debt. These are the personal loans we’ve been discussing, and they don’t require any collateral.

As a result, your approval is largely contingent upon your credit score. If bankruptcy lowered your score, you may not qualify for a good interest rate – if a lender approves you at all.

Applying for a secured personal loan, on the other hand, can dramatically boost your chances of approval. Lenders put less emphasis on your credit score and your other financial qualifications because they find a loan secured by collateral to be less risky since the collateral guarantees them repayment of some kind.

Rocket Loans doesn’t offer secured personal loans at this time, however.

Home Equity Loans Or HELOCs

You can use a home equity loan in a fashion similar to a personal loan, but, unlike a personal loan, it’s secured by your home. As with other secured loans, you’ll likely get a lower interest rate on a home equity loan than you would on an unsecured personal loan. In this case, though, you stand to lose your home if you default on the loan.

Likewise, a home equity line of credit (HELOC) is secured by your home, but instead of coming in a lump sum, it takes the form of a revolving credit line. Also different from a home equity loan, a HELOC features a withdrawal and repayment period. These terms are detailed in your lender approval.

In the event you fail to repay your HELOC funding in the agreed-upon time frame, your lender can seize your home – just as the lender can if you don’t meet the terms of a home equity loan.

Secured Credit Cards

When getting a new credit card, your credit score determines your credit limit. Since bankruptcy damages your credit, you may want to opt for a secured credit card.

Instead of property or assets, a deposit equal to your credit limit secures this type of credit card. For example, if you make a $300 security deposit, your credit card will have a limit of $300. If you repay your full balance or upgrade to an unsecured card, you’ll get your full deposit back. If you default, however, your card issuer will claim the amount you put down.

Co-Signed Loans

Another potential borrowing option post-bankruptcy is to have a co-signer on your loan application. A co-signer will ideally be a close friend or relative who has good credit. Co-signers agree to be held responsible for the loan if you as the primary borrower default or miss payments. Any missed payments will affect the credit score of both parties.

Rocket Loans doesn’t currently offer co-signed loans.

Loans To Avoid After Bankruptcy

Plenty of predatory lending practices aim to take advantage of borrowers in need of cash. Even if your credit could stand a boost, try to avoid these no-credit-check loans at all costs.

  • Payday loans: Payday loans offer fast funding, with repayment due by the date of your next This is typically 1 – 2 weeks out. The annual percentage rate (APR) for these loans is around 400%. Lenders charge lending and rollover fees, which can put you in worse financial standing than when you sought out the loan.
  • Title loans: Similar to payday loans, title loans don’t require a credit But, they do require collateral – typically a vehicle. APR on title loans is usually around 300%, and you could lose your vehicle if you don’t pay by a certain date.

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FAQs About Bankruptcy Loans

Getting a loan after bankruptcy can seem complicated. Here are answers to some frequently asked questions concerning this topic.

Can I get a personal loan after bankruptcy?

Getting a loan after bankruptcy can be difficult due to how bankruptcy affects your credit score. Having a bankruptcy on your credit report can deter some lenders from approving you for any amount. Qualifying for a loan may still be possible, though, even if you end up with a higher interest rate because of your bankruptcy.

How long do I have to wait to get a personal loan after bankruptcy?

You can’t be approved for a new loan until your outstanding debt is discharged. A Chapter 7 bankruptcy takes up to 6 months to discharge your debt, and a Chapter 13 payment plan can last up to 5 years. For the best chance of getting a loan after a bankruptcy, consider waiting until the bankruptcy is removed from your credit report. This can take 7 – 10 years, depending on whether you filed Chapter 7 or Chapter 13.

Are there banks that work with bankruptcies for personal loans?

Banks, credit unions and private lenders all have their own standards for approving someone for a personal loan after a bankruptcy. Check with a representative of your personal financial institution about how they handle these situations. Lenders with more relaxed credit score requirements could be your best bet for getting approved after bankruptcy.

Final Thoughts

Filing for bankruptcy will hurt your credit score, which can make getting approved for an unsecured personal loan difficult. Some lenders may approve those with a low credit score but charge them a higher interest rate. You may instead decide to seek out alternative loan options or wait until you repair your credit or your bankruptcy is removed from your credit report.

Whatever approach you choose, just make sure it’s the right one for your financial situation.

For an idea of your personal loan interest rate and repayment term, start the process today with Rocket Loans.

1Same-day funding is available for clients completing the loan process and signing the Promissory Note by 1:00 p.m. ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same-day funding, but results may vary, and your bank may have rules that limit our ability to credit your account. We are not responsible for delays that may occur due to an incorrect routing number, an incorrect account number or errors of your financial institution.

Getting a personal loan has never been easier.

The Rocket LoansSM application process makes borrowing simple.

Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years.