What if you Need Loans After Bankruptcy?

A bankruptcy filing can have significant long-term effects on your credit. Even though you may have cleared all of your debts, you may still not be in your ideal financial situation afterwards. However, if you need loans after bankruptcy, either in the short- or long-term, there are options.

A bankruptcy filing will stay on your credit from somewhere between seven to ten years depending on your situation. Because of that, your credit rating will be worse. Your credit rating is a score given to you or looked at by those people who will be responsible for giving you a loan. In other words, your credit rating is a collection of statements by your previous lenders saying how trustworthy you are to make a payment. Therefore, future lenders can use that credit rating to tell whether they can trust you with their money. The problem is, a bankruptcy filing shows that you have forfeited debts before, so future lenders will be much more wary as to not be caught in the same situation. As a result, your credit score will be much worse.

Since your credit rating will be lower, you will have a harder time getting good loans. Although it is always possible to get a loan (although that may be changing with the subprime mortgage crisis and the recession), you may not be able to get one at a good rate. You may be forced to take out a loan with a very high interest rate, meaning that you will be paying a lot of extra money on top of the value of the loan. On the other hand, you may be able to get a secured loan, which is backed by your own wealth. This means that you will have to pay onto the loan before you are able to get the value out of it.

After a bankruptcy filing, it is important to start to rebuild your credit. Although you may have trouble getting a suitable loan, anything you do will help. It is usually recommended to wait two years after a bankruptcy discharge before trying to get a large, long-term loan. In the end, you will be able to rebuild your credit, as long as you stick to your budget, meet your payments, and do not fall behind like before.

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Graham Billings

Graham Billings is a senior at the University of North Carolina at Chapel Hill with a double major in Economics and Political Science. He plans to graduate in December of 2009 and then attend law school in the fall of 2010. He is a member of the Economics Club at Carolina, which brings in speakers and hosts events in order to discuss current economic issues and help those who do not have a background in economics become more familiar with it. He is a National Merit Scholar and Dean’s List recipient. He is originally from Greensboro, North Carolina and attended the Early College at Guilford for high school, taking classes at Guilford College. In addition to economics, his academic interests include the legal and political system. He headed the only student-run, high school-level Honor Court in high school and participated in a national model Congress in San Francisco, run by Harvard students, and won awards of excellence for his work on the mock Supreme Court. Additionally, he tutors Carolina students in economics on a volunteer basis.

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