Bankruptcy, while no longer uncommon and certainly not the end of the world, still leaves people with the stigma of a low credit score and questions about their financial character . . . will the post-discharge debtor be able to manage his/her finances, be financially responsible and have the financial wherewithal to repay future obligations. If you have had to file for bankruptcy in the past, does that mean you can never get a loan to, say, buy a car or purchase a home? The quick answer is “no, that is not what bankruptcy means.” The more complicated answer includes questions like: what kind of loan do you need, how long it will take to qualify, or what will the interest rate be on that loan? These are good questions to ask so shop around and read further about loans after bankruptcy.
Home Loans – The Federal Housing Administration (FHA) specializes in insuring loans for qualified borrowers who have issues that exclude them from conventional loan programs, such as less than perfect credit histories. While sub-prime loans also cater to this type of borrower, FHA loans offer interest rates and terms that are much lower than sub-prime loans and are competitive with the market. The FHA will insure mortgages two years after your Chapter 7 discharge date, but you must establish a credit history in those two years and it cannot contain any late payments, collections judgments or other blemishes. A Chapter 13 bankruptcy includes a court-ordered repayment schedule for debts and does not impact your credit as much as a Chapter 7, as long as you comply with the court-ordered payments. Because you still have a record of responsibilities for your debts after a chapter 13 bankruptcy, the FHA only requires a 12-month wait from date you began making your payments. A great way to start building good credit during these months is to open a secured credit card that is paid off. Also, it is important to be on time with bills during this waiting period.
Car loans – Car loans, as a rule, are smaller can usually be obtained by a sub-prime lender, Be aware, however, that sub-prime means exorbitant interest rates and other unfavorable loan terms. Search online for direct lenders, especially direct lenders who specialize in providing auto loans to buyers with poor credit. Don’t let bad credit or recent bankruptcy prevent you from going on with your life. Your dream of home ownership and car ownership can still be attained. Be sure to consult with your bankruptcy attorney about lenders and methods to increase your credit.
Overall – Certainly, the filing of a bankruptcy and receiving of a discharge are not the end of the financial world for debtors. Financing will be available, but you will have to work on it. Banks offer borrowers different rates based on credit worthiness. As a potential borrower, a post-discharge debtor should be able to secure a loan, but at the price usually of a higher interest rate. Good luck!