Can You Get a Personal Loan After Bankruptcy?
- Bankruptcies negatively affect your credit and remain on your credit report for years.
- You can qualify for a personal loan after bankruptcy, but approval is harder and usually comes with higher interest rates or fees.
- Waiting at least one to two years after bankruptcy discharge improves your changes 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, many 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 comes with 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 you should expect limited 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, you’ll have more options. Many borrowers are able to 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 and Chapter 13 are the two most common types of bankruptcy 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 improves approval odds.
- Collateral or cosigner. Offering security or 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 slightly decreases your credit score further.
According to research from LendingTree, the average credit score is 571 one to two years after bankruptcy, and these borrowers have an average credit limit of $5,036 and an average of 7.7 open accounts. This shows it’s possible to get loans after you declare bankruptcy. But keep in mind that lenders want to see progress in rebuilding your credit first.
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 term.
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 |
In addition to traditional banks, credit unions and some online lenders may be more willing to work with borrowers after bankruptcy. 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.
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 access funds. These alternatives can help you rebuild your credit and create a stronger foundation for future borrowing.
- Secured credit card. A secured credit card requires a refundable deposit as collateral, but using it responsibly can build your credit history and improve your score over time, as long as the lender reports your payment history to the credit rating agencies.
- 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 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 companies 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
Protect yourself by working only with reputable banks, credit unions or verified online lenders and never providing personal information unless you’re sure the lender is legitimate.
Get personal loan offers from up to 5 lenders in minutes
Read more
Can I Get a Car Loan After Bankruptcy? Updated December 2, 2023 Getting a car loan after bankruptcy is possible, but it usually takes some research and…Read more
How Does Bankruptcy Affect Your Credit? Updated December 13, 2024 Depending on how high your credit score is to start, you could lose hundreds of…Read more