Bankruptcy shouldn’t be taken lightly. Aside from asset forfeiture, the shock to your credit rating is the main disincentive to filing bankruptcy. Prospective filers are cautioned that they’ll have a hard time accessing credit for up to a decade. While there’s some truth to these warnings, the worst case scenarios are also a bit overblown.
It’s possible to get bank loans after a bankruptcy, but you may have to work a bit harder to get them and approach the process with an open mind. We’ll look at some of the questions you should ask and strategies you can pursue below.
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What Happens To My Credit Score?
Even after bankruptcy, your credit rating will be one of the biggest determining factors in whether or not a bank will lend to you.
While you might assume bankruptcy completely destroys your credit, the truth is a bit more complicated. You can expect a bankruptcy to shave a hundred or two points off your credit rating which, of course, isn’t great. How negatively impacted your credit is will depend on the amount of debt being discharged and how many accounts are delinquent, as well as how many accounts are current. In fact, depending on how bad your credit was at the time you declared bankruptcy, it’s not impossible that your credit might slightly improve.
The bankruptcy will stay on your record for seven to 10 years, but your credit can begin to improve immediately.
How Can I Improve My Credit Score After Bankruptcy?
There are a number of different ways to improve your credit. Some of them apply to everyone, others more specifically those with bankruptcies on their record.
- Get A Secured Credit Card: Unlike regular credit cards, secured credit cards require a cash payment as collateral. In fact, that deposit serves as your credit line. It’s not a great deal, but it will help rebuild your credit and offer the functionality of a credit card.
- Pay Your Bills On Time: This is pretty obvious, but keeping your accounts current will help.
- Use Only A Fraction Of The Credit You Have: Keep your balances small (somewhere below 25 percent of your available credit).
- Take Out Loans and Keep Payments Current: Availability will vary based on your credit rating. We’ll be looking at some options below.
- Use Alternative Lenders: Many alternative lenders cater to individuals and businesses with bad credit, just be aware that some of them won’t work with a borrower who recently declared bankruptcy.
- Consider A Hard Money Loan: If you’re looking at a short-term real estate investment, hard money provides a risky way to get financing with bad credit.
- Wait: On the bright side, the farther you get away from the date of your bankruptcy, the less impact it will have on your credit rating.
What Loans Are Available?
Lending is a gamble, but there are lenders willing to take a bigger risk in exchange for a potentially larger payday. Believe it or not, it’s possible to get a personal loan almost immediately after you declare bankruptcy. Business loans aren’t off the table either, although you may have to jump through additional hoops to prove the creditworthiness of your business plan.
The bad news is that you’re probably going to be paying through the nose for any credit that’s extended to you. But if you’re judicious about how much you borrow and don’t let a lot of interest accrue, you can still make good use of loans.
Since we’re looking specifically at bank loans, the good news is that they tend to be a bit more conservative when it comes to how much they’ll extend you and the length of the terms. Keep an eye out for any supplemental fees they charge on high-interest products.
Mortgages are a different story. It’s almost unheard of for a bank to offer a mortgage to a newly bankrupt customer. Depending on the type of mortgage you’re looking for, the waiting times can range from one to four years. If you’ve previously defaulted on a mortgage, your wait time is more likely to fall on the longer side of that range.
How Can I Find The Right Bank?
Not all banks have the same bankruptcy policies. Consider keeping your business and personal accounts with a bank or credit union willing to extend you credit. You’ll also want to gather as much information as you can about what products are offered to customers with a bankruptcy on their record.
Be wary of extremely high-interest rates and (especially) any monthly maintenance fees charged in addition to interest.
What If I’ve Filed Chapter 13?
Unlike Chapter 7 bankruptcies, Chapter 13 bankruptcies last several years while your business undergoes restructuring. During this time, you’ll have trustee-enforced restrictions on how you can borrow.
As big an impact as a bankruptcy has on your life and business, it’s by no means the end of the line in terms of getting credit. Just be patient, weigh your options carefully, and don’t get taken advantage of.