Loans After Bankruptcy: What You Should Know

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Key takeaways

It’s possible to get a personal loan after bankruptcy, though it will be harder to find a lender.
Credit unions, local banks, and online lenders offer loans with more lenient lending criteria.
To secure a loan post-bankruptcy, consider secured loans, a cosigner, or cash advance apps.

Personal loans are incredibly versatile. You can use them to consolidate debt, cover home repairs, or for emergency expenses. But can you get personal loans after bankruptcy?

Bankruptcy has a huge effect on your finances for years after you file. Your credit score plummets, making it difficult to secure a personal loan or get a new credit card. Difficult, yes, but not impossible. There are lenders willing to work with every type of borrower.

Read on to learn where to find personal loans after bankruptcy and how to improve your chances of approval.

Can you get personal loans after bankruptcy?
Types of bankruptcy
How long after bankruptcy can you get a personal loan?
Is getting a personal loan after bankruptcy difficult?
Where can you find personal loan lenders after bankruptcy?
How to get a loan after bankruptcy
Look out for predatory lending and personal loan scams
Alternatives to personal loans after bankruptcy
Bottom line

Can you get personal loans after bankruptcy?

Bankruptcy is not the end. You will be able to get personal loans, but it won’t be as easy as before.

Lenders now consider you a high-risk borrower. Many won’t approve you and those that do will charge steep interest rates and additional fees like an origination fee. Some lenders will even require you to secure the loan with collateral or add a cosigner.

That said, lenders will review your current financial situation, not just your past. If you’ve taken the time to rebuild credit, have a good income, and decreased your debt levels, you are more likely to qualify for a loan.

Types of bankruptcy

When filing for bankruptcy, most people opt for either Chapter 7 or Chapter 13. Which one you choose impacts your eligibility for personal loans.

Chapter 7 bankruptcy

Chapter 7 bankruptcy is often referred to as a “liquidation” bankruptcy. It requires you to sell all non-essential assets to repay creditors. Once completed, your eligible debts are discharged, meaning you are no longer required to pay them. This type of bankruptcy stays on your credit report for up to 10 years.

Getting a personal loan after Chapter 7 is a mixed bag. On the one hand, you can start rebuilding your credit and applying for loans or credit cards right away. On the other hand, lenders look less favorably on Chapter 7 bankruptcy, and it stays on your credit report longer.

Chapter 13 bankruptcy

Chapter 13 bankruptcy is a “reorganization” or “repayment” bankruptcy. You do not sell your assets. Instead, you establish a repayment plan with your creditors that lasts three to five years. Once completed, any remaining dischargeable debt is erased. Chapter 13 bankruptcy stays on your credit report for up to seven years.

Loans, while in bankruptcy, aren’t usually possible. You must wait three to five years until your debts are discharged to apply for a personal loan. When you do apply, lenders typically look at Chapter 13 bankruptcy more favorably since you repaid some of your debts.

Drowning in debt?

Find out if it’s time to file bankruptcy.

How long after bankruptcy can you get a personal loan?

The exact timing for getting a personal loan after bankruptcy varies by lender. The majority of lenders want you to wait at least one to two years after filing before applying. If you filed for Chapter 13, you have to wait until the repayment plan is complete – usually three to five years.

The longer it’s been since filing, the better terms you’ll receive. If you can, wait seven to ten years for the bankruptcy to fall off your credit report. Once the bankruptcy is off your report and your score has improved, you will have a much easier time securing a loan with favorable terms.

Is getting a personal loan after bankruptcy difficult?

Securing a personal loan after bankruptcy will be challenging. Bankruptcy does enormous damage to your credit score, causing it to fall anywhere from 100 to 200 points. The exact amount varies based on your credit prior to filing.

Lenders are cautious and tend to charge more to high-risk borrowers. You will be able to find a loan but will have to pay more for it. The best thing to do is build up credit and then apply for a loan.

Do you have a poor score?

You can get a loan with a 500 credit score!

Where can you find personal loan lenders after bankruptcy?

Start with credit unions and local banks. Credit unions tend to have lower interest rates and lenient requirements. Local banks can be a good choice if you have a good relationship with them.

Online lenders that offer bad credit loans are another popular option. Many approve borrowers with less-than-stellar credit scores; some don’t even require a credit check. Before you apply, do a little research and make sure they have a good reputation.

How to get a loan after bankruptcy

Review your credit score

First, check your credit score. Most lenders have minimum credit score requirements. It’s no use applying for a loan you don’t meet the basic eligibility criteria for.

Many banks and credit cards let you check your credit score for free once per month. You can review your full credit report from each of the three major credit bureaus – Experian, Equifax, and TransUnion – once per year via annualcreditreport.com. And it’s free!

Look over your credit report for errors that can negatively affect your score. If you find any, dispute them with the issuing bureaus before applying for the loan. Getting a mistake off your report can give an immediate boost to your score.

Decide how much to borrow

It’s tempting to borrow the maximum amount you can get your hands on. The problem is loans need to be paid back on time. Lenders are more likely to approve loan amounts you can afford to repay.

Consider a cosigner

Adding a cosigner with good credit can increase your approval odds and help secure more favorable rates. This is because a cosigner decreases the lender’s risk since they are legally obligated to repay the loan if you fail to. Keep in mind that if you miss a monthly payment, both you and your cosigner’s credit scores will suffer.

Shop around for lenders

Don’t settle on the first offer. Research personal loans for bad credit and lenders. Compare loans, including interest rates, fees, amounts, and repayment terms. Look at customer reviews and the lender’s reputation to make sure you want to work with them. Taking the time to do a little research helps you get the best deal for your financial situation.

Get prequalified

Once you’ve found a few lenders, try to prequalify. Prequalifying lets you see your chances of approval without hurting your credit score. You submit basic personal and financial information and the lender does a soft inquiry to decide if you’re preapproved.

The basic information you’ll need typically includes:

Full name
Current address
Social Security Number
Income
Loan purpose
Loan amount
Cosigner information, if applicable

After you’ve prequalified with a few lenders, compare your potential offers. Look at the loan amount, annual percentage rate (APR), which includes both the interest rate and fees, and repayment terms. Then, choose the best loan offer for you.

Submit an application

After you’ve prequalified and selected the best offer, it’s time to formally apply. You will likely need to submit a few documents, including pay stubs, driver’s license, or passport.

Many lenders – especially online lenders – provide decisions as soon as the same day. Others may take a few business days to respond.

When emergencies happen, you need cash fast.

Get the emergency cash you need instantly!

Look out for predatory lending and personal loan scams

Not all lenders have your best interest at heart. A lot are out there trying to make a quick buck. After bankruptcy, you’re more likely to run into predatory lenders and scammers willing to take advantage of borrowers with bad credit.

Predatory lending

Predatory lenders are those who offer loans that are nearly impossible to repay. These loans have excessively high interest rates (think triple-digit APRs), hidden fees, short repayment terms (only one to two weeks), or balloon payments due at the end.

Yes, you should expect higher interest rates and additional fees after bankruptcy, but they should still be affordable.

Personal loan scams

If a loan seems too good to be true, it probably is. Avoid any lender that promises guaranteed approval (does not exist), upfront fees (legitimate lenders will take fees out of the loan after approval), contacts you first, and time-sensitive or high-pressure offers.

Legitimate lenders know that taking out a loan is not a decision to be made lightly. They will give you time to think it through. Take advantage of this time and research your lender. Check sites like the Better Business Bureau and Consumer Affairs before making a final decision.

Alternatives to personal loans after bankruptcy

If you need to borrow money after bankruptcy, there are options besides personal loans.

Payday alternative loan

Payday alternative loans (PAL) are a type of bad credit loan you can get through federal credit unions. They are small-dollar loans designed to be an alternative to payday loans.

The loan amount ranges from $200 to $2,000, with repayment terms of one to twelve months. Application fees are capped at $20, just enough to cover the cost of your application, the APR cannot exceed 18%. This is an incredibly low APR for a bad credit personal loan.

You have to be a member of the federal credit union for at least one month before you can apply.

Secured personal loan

If you have collateral, you may be able to get a secured personal loan. Here, your loan is backed by an asset like your car or savings account. The collateral lowers the lender’s risk, so they may offer a lower interest rate and more favorable terms. The catch is if you default on the loan, the lender can take possession of your collateral.

401(k) loan

A 401(k) loan lets you withdraw funds from your retirement account. You then repay the principal plus interest back into the account. All the money goes to you, not an external lender. It sounds ideal, but there are fees and risks involved.

If you borrow from your 401(k) before you’re 59 ½, you may have to pay taxes if you don’t repay the loan. Should you quit your job, you’ll have to repay the total amount due within 90 days. Lastly, when you take out a 401(k) loan, you lose potential investment returns and have to repay it using after-tax dollars.

Cash advance app

Cash advance apps send you a portion of your paycheck before payday. You get the money instantly (with a fee) or in one to three business days for free. There is generally no credit check, no interest, and little to no fees. Potential fees include a fast funding fee, subscription fee, or tip. Generally, you have to pay the cash back within two weeks or on your next payday.

These apps can be a good short-term solution when you need a little cash to get you through.

Interested in a short-term loan?

Here’s what you need to know about short term loans before you borrow.

Frequently asked questions

1. Which personal loans should you avoid after bankruptcy?

Avoid loans with triple-digit APRs and excessively short repayment periods. These loans may be easy to qualify for, but they are difficult to repay as agreed, often leading to a cycle of debt.

2. How long does it take to bounce back from bankruptcy?

Bankruptcy is a big deal. It won’t fall off your credit report until seven to ten years after filing, but you can start recovering from it right away. Follow a budget, pay your bills on time, open new credit accounts responsibly, and keep your utilization low. With responsible financial behavior, your credit score will start improving within 12 to 18 months.

3. How can you build credit after bankruptcy?

Building credit after bankruptcy is the same as before. Pay bills on time, reduce debt, and keep your credit utilization low to establish a positive payment history. Over time, your score will improve.

4. How soon after bankruptcy can you secure a loan?

You can secure a personal loan shortly after declaring bankruptcy, but you have to wait until your debts are discharged. Debts are immediately discharged with Chapter 7 bankruptcy and after three to five years with Chapter 13. While you can get a loan shortly after filing bankruptcy, waiting to improve your credit score can lead to better terms and lower interest rates.

Bottom line

Bankruptcy can hurt your credit for years and make it hard to qualify for a personal loan with favorable terms. Your best bet is to wait and improve your score. If you absolutely need to borrow money now, look into secured loans, opt for a co-signer, or find a lender who offers personal loans for people with bad credit. Beware of high interest rates and additional fees. Ensure you only borrow what you need and pay it back on time. Do so, and you can rebuild your credit and be eligible for better loans in the future.

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13. Up to $500 per Covered Trip that is delayed for more than 6 hours; and 2 claims per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

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Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.