Can You Get a Personal Loan After Bankruptcy?
- Bankruptcies negatively affect your credit and remain on your credit report for several years.
- You can qualify for a personal loan after bankruptcy, but approval requirements are stricter and you may pay higher interest rates or fees.
- Waiting at least one to two years after bankruptcy discharge improves your chances of approval for a loan.
Filing for bankruptcy can feel like closing the door on future financial opportunities, but it doesn’t mean you’ll never qualify for credit again. While bankruptcy remains on your credit report for several years, some lenders may be willing to approve a personal loan after bankruptcy.
The key is understanding how bankruptcy affects your credit and what types of loans are available to you.
Can you get a personal loan after bankruptcy?
Yes, you can get a personal loan after bankruptcy, but it’s more difficult to get approved and you’ll face stricter requirements. Lenders view a bankruptcy as a sign that you’re a high-risk borrower, since it shows you’ve had serious trouble repaying debts in the past. That doesn’t mean borrowing is off the table, but expect limited loan options and higher costs.
Approval usually depends on two factors:
- Time since discharge. Immediately after bankruptcy, most traditional lenders will deny your loan application. As time passes and your credit improves, you’ll have more options. Some borrowers can get loans or lines of credit one to two years after receiving their bankruptcy discharge.
- Credit rebuilding progress. Demonstrating responsible use of credit, such as paying bills on time and keeping your account balances low, shows lenders that you’re working on handling credit responsibly.
Still, you will likely encounter higher interest rates and fees than borrowers without a bankruptcy on their credit report. You may also qualify for lower credit limits, since lenders will want to limit their exposure. You may also need proof of steady income or get a cosigner to qualify for a loan.
How bankruptcy affects your credit and loan eligibility
Bankruptcy has a major impact on your credit history, but the effect varies depending on the type of bankruptcy filing.
Chapter 7 bankruptcy and Chapter 13 bankruptcy are the most common types available to individuals. Chapter 7 is known as liquidation bankruptcy because it wipes out most unsecured debts, but you may have to sell some assets to pay creditors.
Chapter 13 is a reorganization bankruptcy that allows you to keep your assets while following a court-approved repayment plan over several years.
| Type of bankruptcy | Impact on credit | How long does it stay on credit? |
|---|---|---|
| Chapter 7 (liquidation) | Discharges most or all unsecured debts Seen as most severe by lenders | 10 years |
| Chapter 13 (repayment plan) | Requires partial repayment of debts over three to five years Seen as less severe by lenders | 7 years |
Because a bankruptcy stays on your credit report for seven to 10 years, potential lenders will evaluate your loan application carefully. Some factors they look at include:
- Credit score. A low credit score makes approval harder, but lenders may still consider you if you show recent positive activity, like paying bills on time.
- Income stability. Steady, verifiable income reassures lenders that you can handle new debt payments.
- Debt-to-income (DTI) ratio. Lenders calculate your monthly debt payments as a percentage of your income. A lower DTI ratio improves approval odds.
- Collateral or cosigner. Putting up a valuable asset or adding a cosigner makes extending credit less risky for the lender.
- Other savings or assets. Having additional resources, such as an emergency fund or other liquid assets, reassures lenders that you could continue making loan payments even if you lose your job or face other financial challenges.
When you can apply for a personal loan after bankruptcy
You don’t have to wait until bankruptcy disappears from your credit report to apply for a personal loan, but timing matters. Applying too soon after discharge can result in denials, and each hard inquiry can slightly lower your credit score.
While filing bankruptcy can decrease your credit score by as much as 200 points, according to Experian, building your score back up after debts are discharged happens incrementally over a couple of years with positive account and payment behavior.
As such, it’s possible to get approved for loans after you declare bankruptcy, but lender underwriting may vary in terms of how much time has passed since you filed — and the type of progress the lender expects to see since then.
Waiting until you’ve established a habit of on-time payments, lowered your DTI ratio and built up some savings will improve your approval odds and your loan terms.
How to rebuild your credit after bankruptcy
Start with the basics: build positive credit habits
Your credit reports are a snapshot in time of your credit behavior. While negative items like a bankruptcy can remain on your report for several years, the most recent activity carries significant weight in both the scoring algorithms and lender consideration. Therefore, establishing a track record of positive credit habits post-bankruptcy is the best thing you can do.
Focus on these activities, which have the most impact on your credit score:
- Pay every bill on time — even small ones. Payment history is the biggest factor in most credit score calculations, accounting for about 35% of your FICO score. It makes sense since lenders want to feel confident that you can stay committed to repaying your debt. To make sure your bills are always paid by their due dates, consider setting up automatic payments for at least the minimum amount due.
- Keep credit card balances low. The second biggest credit factor (accounting for 30% of your score) is utilization, or the amounts you owe relative to your credit limits. Even if you’re paying on time, lenders consider carrying high balances to be risky behavior. Experts say to try to keep your credit utilization below 30% and as close to zero as possible. This means if you have a $1,000 credit limit, try not to let the balance go above $300.
- Avoid applying for too much new credit at once. Multiple credit applications in a short time frame could raise a red flag with lenders that you are having cash flow challenges. Plus, you can become overwhelmed by multiple debts, making it difficult to keep up with repayment. That’s why each time you apply for credit and a hard inquiry is performed, your score drops slightly. New credit applications make up about 10% of your FICO score.
Apply for beginner friendly credit
Using credit products again after a bankruptcy is important for reestablishing your credit score, but you should gradually work your way back. Using small credit lines responsibly and making consistent payments over several months to a couple of years can help you repair your credit reputation and become creditworthy in the eyes of potential lenders. In fact, there are some credit products that are specifically geared toward people who are in this rebuilding phase. Some ideas for getting started include:
- Apply for a secured credit card to establish a payment history. A secured credit card requires you to put up a cash deposit that serves as collateral and your credit limit, though it otherwise works the same as any credit card. However, because your deposit removes some of the risk for the lender, you can get approved even with a low credit score. By using the card responsibly, you can typically “graduate” to unsecured credit over time.
- Get a credit-builder loan to build credit through on-time payments. This type of loan is unique in that the loan amount is held in a savings account rather than given to you. You make regular payments until you pay off the loan amount, at which time you receive the funds. From a credit perspective, it gives you the chance to prove you can pay off an installment loan responsibly.
- Become an authorized user on someone’s credit card. Piggybacking off of another person’s strong credit status as an authorized user can help raise your credit score, too, as long as the account stays in good standing. It’s important to note that not only is the primary cardholder putting their credit on the line for you, but if they miss payments or carry large balances, it could hurt your score.
Track your progress before applying for future credit
Once you begin rebuilding your credit, it’s a good idea to keep tabs on your credit health and build on your progress. Developing good habits can protect your finances moving forward, allowing you to safeguard your future and be prepared for potential setbacks.
- Check your credit score regularly. Look for trends in your credit score and pay attention to how different behaviors cause fluctuations. Ideally, you should see slow but steady growth in the aftermath of your bankruptcy. There are many ways to monitor your credit score for free, including through many banks and credit card companies.
- Keep your debt-to-income ratio manageable. To help avoid getting into future trouble with debt, keeping your monthly debt payments well below your income is advisable. By leaving enough wiggle room, you will always have some extra funds available should unexpected expenses arise.
- If possible, build a small emergency fund. Having money set aside to cover a small emergency expense can help you avoid borrowing money or relying on credit. To start, set up a small automatic deposit from every paycheck into a separate savings account. Keep it growing to eventually have enough money to cover three to six months of expenses.
Use LendingTree Spring to monitor your credit score and track your progress toward loan approval. Our free app provides tips to rebuild credit and your best personalized rates for loans and credit cards — all from the nation’s largest network of lenders.
What types of loans are available after bankruptcy
While bankruptcy limits your options, several types of loans may still be available depending on the lender’s requirements and how much you want to borrow.
Here are a few options to consider.
| Loan type | How it works | Pros | Cons |
|---|---|---|---|
| Secured loan or line of credit | Backed by collateral (your car, savings account, etc.) | Easier to qualify Lower rates | Risk losing collateral if you default Longer approval process |
| Unsecured loan | Backed by borrower’s credit status and promise to repay the loan, no collateral required | No collateral needed Flexible use of funds | Harder to qualify High interest rates post-bankruptcy |
| Cosigned loan | Someone with stronger credit guarantees repayment | Better chances of approval Potentially lower interest rate | Puts cosigner at risk if you default Impacts the cosigner’s DTI ratio |
| Credit-builder loan | Small loan held in a savings account until paid off | Easier to qualify Builds credit history | Funds not available until you repay the loan Only available in small amounts |
Credit unions and some online lenders may be more willing to work with borrowers after bankruptcy than traditional banks.
If you’re a member of a credit union, that’s a good place to start your loan search, since they usually offer lower fees and lower interest rates than online lenders. Credit unions may look at more than just your credit score and base eligibility on your debt-to-income ratio and relationship with the institution.
What to do if you can’t get a personal loan after bankruptcy
If qualifying for a personal loan after bankruptcy feels out of reach right now, there are other ways to manage your debt and access funds. These alternatives can help you rebuild your credit and create a stronger foundation for future borrowing.
- Debt management plan. If you find yourself in debt again after a bankruptcy, consider a debt management plan. Nonprofit credit counseling agencies offer these plans to help consumers consolidate certain debts into one monthly payment. You may be able to lower your interest rates and your monthly payment.
- Waiting and rebuilding. Focusing on consistent on-time payments, lowering your DTI ratio and building savings gradually increases your chances of qualifying for better loan terms later.
When looking for a loan, be cautious about lenders who promise “guaranteed approval” or advertise loans with no credit checks. These offers often come with extremely high interest rates, hidden fees or unfair terms that can trap you in a cycle of debt.
Some predatory lenders even operate outright scams, targeting borrowers who are trying to recover financially.
Some red flags to look out for include:
- Charging upfront fees before you receive the loan funds
- Pressure tactics urging you to sign the loan documents quickly
- Unclear or missing loan terms in the agreement
- Offers that sound too good to be true
- Asking you to lie or omit information from your loan application
That said, there are some personal loans for people with bad credit from reputable banks, credit unions or verified online lenders. When exploring options, never provide personal information unless you’re sure the lender is legitimate.
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