People who file for bankruptcy often have issues with their income, debt and/or credit. These issues prevent them from being able to qualify for loans. The type of bankruptcy the person has filed as well as their financial status prior to filing bankruptcy also determines the outcome of loan qualification. However, it is also fairly simple to make generalizations as to how challenging loans for people with bankruptcy will be to obtain.
Loan options narrow due to the restrictions most lenders place on borrowers who have filed for bankruptcy. Unfortunately, bankruptcies have become common since the recession. However, more lenders are open to providing loans for people with bankruptcy.
Conventional loans are generally approved for borrowers who are considered low risk. Low risk borrowers generally do not have a bankruptcy on their credit file. And if they do have one, it has been discharged for several years.
Lenders may require debtors to pay higher rates of interest while receiving lower loan amounts. Similarly, lenders sometimes are willing to approve loans if the borrowers are willing to wait for their loan application to be reviewed. For example, there are many mortgage lenders that will approve a loan for a person who has filed for bankruptcy as long as the bankruptcy is over two years old. This will prove to the lender that the borrower has been financially responsible since the bankruptcy.
A bankruptcy can prove to be detrimental to a person’s credit rating. In fact, a bankruptcy alone can drop a person’s credit score a hundred points or more. When lenders combine this with other credit issues such as student loan default, it can be difficult for borrowers to get the funding that they need. A borrower will have to place a lot of focus in finding a lender with more lenient lending qualifications.
Loans for Bankruptcy
Financial institutions specifically design bankruptcy loans for those who are in the bankruptcy process and do not have any other choices for lending. Although these types of loans are easier to get approved for, they also come with several risks.
Personal loans while in chapter 7 often carry a high interest rate. Hence a higher payment which can create added debt issues. The debtor may also need to get the bankruptcy court’s approval before applying for the loan.
Loans for people with bankruptcy can help debtors who are looking for alternative forms of lending for vehicles, mortgages or other reasons. Consult with an experienced bankruptcy attorney to learn more about the options available to you for your specific needs. Bankruptcy information and debt relief counseling are just a phone call away. Contact The Law Offices of Douglas Jacobson today for a free consultation.