Loans with Bankruptcy History
According to media reports, bankruptcy ruins your credit. Yes and no. Getting loans with a bankruptcy history is actually sometimes easier than without a bankruptcy history.
Loans are bets. It’s as simple as that. If you look at the mortgage crisis, a lot of lenders made bad bets. They purchased loans that had little documentation supporting them or took on loans from people that had proven to be bad risks in the past.
Your credit report is a profile of what kind of risk there is associated with betting on you. When you file bankruptcy, your credit is devastated. You are walking away from a lot of debt and creditors are loath to bet on you again. There are some serious exceptions, however.
You can get loans with a bankruptcy history if the term is fairly short. The term refers to the payback period. If the payback period falls within seven years of the date of your bankruptcy, lenders will often be happy to give you money. Why? Because you can only file bankruptcy every seven years. In short, you have no way out of paying back the loan.
Consider buying a car. The payback term is usually five years. Let’s say I go file bankruptcy and it ends in January of 2008. Within a few weeks, I am going to start receiving all kinds of car offers in the mail. Why? Because the car dealers know I can’t file bk again until 2015. If they give me a five year loan now, they are going to get paid or get the car back.
Another thing that helps you with getting various loans with a bankruptcy history is the bankruptcy itself. What happens when you file? All of your debts are wiped out if it is Chapter 13. Many lenders are comfortable giving you money if they know you have no other obligations.
Getting loans with bankruptcy history is like making lemonade from lemons. Yes, your credit is in bad shape, but you are not completely shut down.