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How to Qualify for a Loan After Bankruptcy Discharge

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October 7, 2020

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The Associate Home Loan of Florida does not provide private mobile home loans.

Bankruptcy can have lasting effects on your financial future, but it’s possible to recover after a bankruptcy discharge.

In some cases, declaring bankruptcy can be the best choice when it comes to borrowers who are dealing with a financial problem that just can’t be resolved in any other way. But it can have a serious impact on the ability to secure a loan in the future.

Bankruptcy affects your ability to qualify for loans and credit cards because lenders may view you as a risk. Bankruptcy may stay on your records for as many as 10 years, which means you may have trouble rebuilding your credit for a long time. However, it’s possible to obtain a loan after bankruptcy and recover by having a smart financial plan.

Getting a Loan After Bankruptcy

Loans are legally available to many borrowers after bankruptcy. In some cases, you may not be able to get credit unless you have permission from the bankruptcy court. After your bankruptcy has been completed, your eligibility for loans and credit cards depends on your credit score.

Bankruptcy has a severe impact on credit score, lowering it by as much as 200 points. Many borrowers may be discouraged by a drop that significant, but it is possible to rebuild credit with the right plan of action.

Even if you had a solid payment history and no missed payments prior to your bankruptcy, you’ll still be facing an uphill battle after it’s been cleared. But it’s important not to give up hope—and to follow these tips for qualifying for future loans.

1. Correct Your Credit Reports

When you are applying for a post-bankruptcy loan, there’s a lot of administrative work to be done.

First things first, you’ll need to make sure that your credit report going forward is fully accurate. Be sure to check with all three credit bureaus to ensure your reports are accurate and up-to-date.

If your credit report does not reflect a discharged bankruptcy, you’ll need to contact each of the three bureaus and send them a notice before you can attempt to open a new line of credit.

The history of your bankruptcy will remain on your reports for up to a decade, but it’s still important to show that it’s been discharged as soon as possible. Financial institutions often don’t want to lend to those they believe are still struggling with insolvency.

2. Secured Credit Cards

A secured credit card can be a great way to restore your credit reports post-bankruptcy.

With a secured credit card, you make a security deposit when you open an account and you’re given a line of credit equal to the deposit. The security deposit is used as collateral if you default on payments.

Using a secured card and making timely payments will help you begin building back up your positive credit history. If you can manage your secured account well, a lender may raise your credit limit or approve you for future loans.

After you demonstrate that you can use your credit card responsibility, you may apply for a traditional, unsecured account, which gives you more financial freedom and can help build more trust with lenders.

Note: If debt from uncontrolled spending is what got you into bankruptcy in the first place, track your spending closely, and consider consulting with a financial advisor to help keep your head above water.

3. Co-Signing / Being an Authorized User

You may be able to enlist another’s help in rebuilding your credit, either by getting a co-signer or being listed as an authorized user on someone’s account.

A co-signer may be a trusted friend or family member who can act as a financial backer for you when you apply for a loan or rental agreement. 

A friend or family member may also be able to add you as an authorized user to their credit card account, letting you enjoy some of the benefits of their good credit.

Co-signers are liable for your debt if you fail to pay, and a co-signer’s own financial standing may be negatively impacted if the responsibility of your debt falls to them. Don’t get a co-signer for a loan or rental agreement that you’re unable to pay for yourself. This will preserve your credit score, your co-signer’s score—and keep your personal relationships intact.

4. Get a Bad Credit Loan

Some financial institutions offer “bad credit loans,” which are unconventional loans designed for people who need funding right away but are struggling with a low credit score that disqualifies them from traditional options from large banks.

At Associates Home Loan, we offer a variety of bad credit loan options to help you and your family make it through these tough times. Our team can work with you and your specific financial situation to find a loan that works for you.

5. Be Patient

The process of rebuilding your credit can be slow. Even once you’re back on your feet, it can take up to 10 years to remove a bankruptcy from your credit history.

Don’t apply for too many lines of credit right away to try to speed up the process. Don’t take on more than you can handle—and make a plan for dealing with any financial emergencies that may pop up along the way.

After all, payment history is the number one factor that determines a credit score. Credit cards, utilities, loans, and all other debts are included. Having a late payment could drop your score further, so it’s important to stay on track consistently over time.

Applying for a Post-Bankruptcy Loan

The answer to getting a loan after bankruptcy is to start small and be patient.

There are a variety of different loans that can help you recover, including bad credit loans, credit-builder loans for eligible borrowers, and more. Associates Home Loan is here to help people with credit problems get the funding they need. A new loan can be a great way for people with low credit to show their responsibility to credit bureaus.

We also offer home loans for people with bad credit. You should be aware that these subprime loans carry high interest rates. It may be best to put off purchasing a home until your credit report is repaired.

Remember, Bankruptcy is Not Forever

If you’re patient and manage your credit responsibly, you should be able to rebuild a respectable credit score and qualify for new loans. Consider all the tools available to you, including secured cards, co-signers, and bad credit loans from a lender like Associates Home Loan.

If you’re looking for a post-bankruptcy loan, contact our team at Associates Home Loan to learn about your options. We’re here to help you navigate this journey with our expertise and experience.

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