Published by Mark

Borrowing Money After Bankruptcy

February 16, 2009 at 9:47 am

One of the goals of this bankruptcy blog is to debunk myths, and one of the biggest myths is that, for ten years following bankruptcy, you will not be able to borrow money at all – not for a car loan, or a new credit card, a lease, or a home. What is true is that the fact you filed bankruptcy stays on your credit report for ten years.

As time passes, however, the bankruptcy becomes less and less significant. What creditors realize is that you’re probably a better credit risk following the bankruptcy than before you filed. While it’s true that, immediately after a bankruptcy filing, credit will probably be more limited and more expensive, you won’t be hurting for offers on credit cards. In fact, solicitations might start coming to you right away! Secured credit cards will be offered at lower rates than unsecured cards.

One little-known fact is that, if you have a credit card with a zero balance on it before you filed bankruptcy, you do not need to notify the credit card company that you’re filing. Of course, they may find out anyway. Some might cancel the card, but others will allow you to keep that card after bankruptcy.

When it comes to home loans, studies reveal even better news: Two years following a bankruptcy discharge, debtors can generally qualify for a home loan on the same terms as if the bankruptcy hadn’t happened. In other words, home lenders will be more interested in the size of your down payment and how stable an income you have, than in
the fact you’ve filed bankruptcy.

When it comes to renting an apartment after bankruptcy, your best approach is to be up front with the landlord, explaining the reasons you filed bankruptcy. You might want to bring along recent pay stubs to show that you have steady employment, and that the rent will not be more than a third of your paycheck or less.

For automobile loans following bankruptcy, you’ll find those available as well, perhaps with higher interest rates. Credit unions appear to be a good source for auto loans after bankruptcy, as well as some car companies that do their own lending.

When shopping for a car to buy or lease after bankruptcy, I always explain that it’s a very good idea for you to actually bring a copy of your credit report with you. Not only will the dealer realize you’re informed and “on top of things”, it may avoid them doing a credit check (if you are going around to several different places, and each one orders a credit check, those repeated checks actually hurt your credit score!).

The bottom line – yes, you can definitely borrow after bankruptcy. The idea though, is to borrow only to the extent absolutely necessary, and to re-establish good credit by making regular, on-time payments. Those on-time payments will truly prove to be the key to the fresh start bankruptcy offers.

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