It is a fact that filing for Chapter 7 or Chapter 13 bankruptcy will affect your credit score. A Chapter 7 filing will stay on your credit report for ten years, while a Chapter 13 filing lasts on your record for seven years. During those years, it can be more difficult to obtain credit and get approval for personal loans like a mortgage or auto loan.
More difficult — but far from impossible. You will still be able to get a loan after bankruptcy, though the terms will probably not be as favorable as they were before you filed. At the same time, there are things you can do to get the best possible interest rate, APR and other terms. Here are a few strategies:
- Apply for pre-approval from multiple lenders and compare the estimated APRs they give you.
- If you own your home and have at least 15 to 20 percent equity in it, you may qualify for a home equity line of credit. Because it is a secured loan, banks typically offer lower interest rates for home equity lines of credit than personal loans. Keep in mind that if you ever default on payments, the bank might foreclose on your home.
- You will likely get better terms on a loan if you use a co-signer with good credit and sufficient income. A co-signer is not responsible for your monthly payments — unless you fall behind or default on the loan. So your co-signer would have to be someone who trusts that you can keep up on the payments.
- Using a secured credit card can be a good way for you to rebuild your credit after bankruptcy. These cards work by having the cardholder deposit a certain amount of money into their account as collateral. The amount they deposit is the limit they can spend on the card, and if the cardholder fails to pay back what they charged to the card, the lender seizes the collateral cash. Keeping up on the payments on a secured credit card shows that you are a good credit risk and may help you secure a loan in the future.
Besides these ideas, your bankruptcy attorney can work with you to find ways to begin repairing your credit score once you are finished with bankruptcy. Meanwhile, you will be finished with the debt that was overwhelming you and keeping you from achieving your goals.