Bankruptcy can be a fresh start for a lot of people. If you have found yourself in a situation where you need to get rid of debt or modify your payments to creditors, then bankruptcy could be a good option. However, even after your debts have been wiped out, you may need to obtain loans for other projects. A common thing people believe is that after bankruptcy your credit is so damaged that you cannot ever get a loan again, but this is not necessarily true.
Is it possible to obtain a loan after filing for bankruptcy?
A lot depends on the type of bankruptcy you filed, the type of loan you want to obtain, and where you are in the bankruptcy process. It is a more complex process to obtain a loan during bankruptcy than after the bankruptcy is over. Chapter 7 bankruptcy is a liquidation bankruptcy. The process is quick (typically a few months) and will allow you to get rid of your debts with any non-exempt assets. In contrast, Chapter 13 bankruptcy is a little bit longer. In a Chapter 13 bankruptcy you create a repayment plan that lasts about three to five years so you can repay creditors.
Car Loans
You may still be able to obtain a car loan after you file for bankruptcy. However, your interest rate may be higher if you apply for a car loan after bankruptcy.1 Further, if you file under Chapter 7 of the bankruptcy code then you will need to wait to receive your discharge before you can apply for a car loan.2 In contrast, you may be able to file for a car loan in the middle of your Chapter 13 bankruptcy if you file a motion with the court and include information about the loan and car.3 If you are approved after you provide explanation to the court, you can get specialized automobile finance from specific companies.4
It is more likely that you will want to get a car after you file for a Chapter 7 or Chapter 13 bankruptcy. If you can purchase a car without any debt or help in financing, that would be ideal. There are issues with paying cash for a car after bankruptcy, however. If you come into a large amount of cash after filing bankruptcy and use that to pay for a car, you may have to list that cash as an asset on your bankruptcy petition depending on how long it has been since you filed for bankruptcy.5 If you do want to get a car loan, it is best to wait until you get your Notice of Discharge no matter what bankruptcy chapter you file under. The longer you wait after your Notice of Discharge then the better your interest rate will be.6
Mortgage Loans
Yes, you can also buy a home after bankruptcy, but it is a waiting game. There are various types of mortgage loans you can get and different rules apply to each. A�The various types of mortgage loans differ based on how their financing is structured and who services the loans. For example, Federal Housing Administration (FHA) loans offer low down payments and fixed-rate loans without a maximum income limitation.7 Veterans Affairs (VA) loans require much less to no cash down within conforming loan limits, no monthly private mortgage insurance premiums, and a funding fee, among other things.8 VA loans are available for qualified veterans, reservists, active duty personnel, and family members who are eligible.9 Conventional loans may not be as good as FHA loans when it comes to those with poor credit, but they also do not require mortgage insurance and offer more options.10 Conventional loans are also much more widely available since most lenders and banks will offer them and they are not insured by the federal government.11
So, if you want to obtain a mortgage loan after bankruptcy you are probably wondering which type of mortgage loan is best to look into. While conventional loans are flexible and available, you will have to wait the longest to get them after you declare bankruptcy. You have to wait four (4) years after receiving a Chapter 7 discharge and two (2) years after a Chapter 13 discharge to apply for this type of loan.12 In contrast, FHA and VA loans have shorter waiting periods. You will have to wait for two (2) years from the date you receive your Notice of Discharge in a Chapter 7 bankruptcy and one (1) year after making satisfactory Chapter 13 repayment plan payments.13 With any of these loans, you must also qualify for the loans in other ways – you must be able to show that you can manage your finances by providing explanations to show how you can restore your credit and take on new credit obligations.14
Other Loans
Other types of loans such as student loans or construction loans provide even more complicated issues. If you want to go back to school and qualify for student loans, a lot depends on whether or not you are looking at private loans or federal loans. It will be a lot easier to get federal student aid. Private loan programs often have credit criteria, and often federal Parent or Grad PLUS loans do as well.15 Construction loans work more like home mortgage loans. It is possible to obtain them after bankruptcy, but it will be more difficult with a bad credit history.
Obtaining a loan after bankruptcy can lead to complicated questions. If you find yourself in a position where you need a loan after bankruptcy, you should contact your bankruptcy attorney. Your attorney will be able to advise you about the consequences of obtaining a loan and will be able to guide you when it comes to actually obtaining the loan.
Find out more from an experience Phoenix Arizona bankruptcy lawyer at Ariano & Reppucci.
[1] Rebecca McDowell, Getting a Car Loan After Bankruptcy, nolo.com, http://www.nolo.com/legal-encyclopedia/getting-car-loan-after-bankruptcy.html (last visited Dec. 23, 2014).
2 Id.
3 Id.
4 Michael See, Obtain Car Financing While In Chapter 13 Bankruptcy at Affordable Rates, patch.com (Nov. 6, 2013), http://patch.com/california/burlingame-hillsborough/obtain-car-financing-while-in-chapter-13-bankruptcy-at-affordable-rates.
5 Stephanie Lane, Can I Buy a Car After Bankruptcy?, alllaw.com, http://www.alllaw.com/articles/nolo/bankruptcy/can-buy-car-after-bankruptcy.html (last visited Dec. 23, 2014).
6 Id.
7 Government Loan Options, bankofamerica.com, https://www.bankofamerica.com/home-loans/mortgage/fha-va-mortgage-loans.go?request_locale=en_US#Footnote3 (last visited Dec. 23, 2014).
8 How FHA and VA Loans Stack Up, military.com, http://www.military.com/money/home-ownership/how-fha-and-va-loans-stack-up.html (last visited Dec. 23, 2014).
9 FHA and VA Mortgage Programs, wellsfargo.com, https://www.wellsfargo.com/mortgage/loan-programs/fha-va-loans/ (last visited Dec. 23, 2014).
10 Colin Robertson, FHA Loans vs. Conventional Loan, thetruthaboutmortgage.com (Feb. 22, 2012), http://www.thetruthaboutmortgage.com/fha-loan-vs-conventional-loan/.
11 Id.; Brandon Cornett, Buying a Home After Bankruptcy, and Other Mortgage FAQs, homebuyinginstitute.com (2014), http://www.homebuyinginstitute.com/badcredit_article34.php.
12 Rebecca McDowell, When can I get a mortgage after bankruptcy?, nolo.com, http://www.nolo.com/legal-encyclopedia/when-can-i-mortgage-after-bankruptcy.html (last visited Dec. 23, 2014).
13 Id.
14 See Brandon Cornett, supra note 11.
15 Bankruptcy and Financial Aid, finaid.org, http://www.finaid.org/questions/bankruptcy.phtml (last visited Dec. 23, 2014).
