Getting approved for personal loans after bankruptcy


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Your chances of qualifying for a personal loan after a bankruptcy depend in part on the type and date of your filing, your credit scores and your income. If you are approved, you likely will pay a higher interest rate or fees.


A bankruptcy will remain on your credit reports for up to seven to 10 years, but with effort, your credit scores can become healthier during that time and beyond. While you should always consult with a qualified accountant or attorney regarding your finances post-bankruptcy, and never rely on a blog post like this one, here are a few tips to help you understand what to expect.


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Related: Can personal loans hurt your credit?

Two Main Types of Bankruptcy Filings

While bankruptcy can feel like an isolating experience, it’s not uncommon. Every year, hundreds of
of individuals file petitions, though it’s a figure dwarfed by the 1.6 million in late 2010, when a wave of filings spurred by the Great Recession crested.


There are two main types of bankruptcy available to individuals: Chapter 7 and Chapter 13. With both, typically a bankruptcy trustee reviews the bankruptcy petition, looks for any red flag  and tries to maximize the amount of money unsecured creditors will get.


About 70% of the petitions in 2020 were filed under Chapter 7, and 30% were filed under Chapter 13.

Chapter 7 Bankruptcy

This is often called liquidation bankruptcy because the trustee assigned to the case sells, or “liquidates,” non-exempt assets in order to repay creditors.


Many petitioners, though, can keep everything they own in what is known as a “no-asset case.” Most states let you keep clothing, furnishings, a car, money in qualified retirement accounts, and some equity in your home if you’re a homeowner. (Each state has a set of exemption laws, but federal exemptions exist as well, and you might be able to choose between them; definitely talk to a professional about this.)


After the bankruptcy process is complete, typically within three to six months, most unsecured debt is wiped away. The filer receives a discharge of debt that releases them from personal liability for certain dischargeable debts.

Chapter 13 Bankruptcy

This form, AKA reorganization bankruptcy or a wage earner’s plan, allows petitioners whose debt falls under certain thresholds to keep all their assets if they agree to a repayment plan for three to five years. A trustee collects the money and pays unsecured creditors an amount equal to the value of non-exempt assets, according to Experian. Once the terms of the plan are met, most of the remaining qualifying debt is erased.


If the debtor’s monthly income is less than the state median, the plan will be for three years unless the court approves a longer period. If the debtor’s monthly income is greater than the state median, the plan generally must be for five years, according to


Certain debts can’t be discharged through a court order, even in bankruptcy. They include most student loans, most taxes, child support, alimony and court fines. You also can’t discharge debts that come up after the date you filed for bankruptcy.

Will Bankruptcy Ruin My Credit?

A bankruptcy will be considered a “very negative event” on your FICO Score, the folks at FICO say, but the severity depends on a person’s entire credit profile. Someone with a super high credit score could expect a “huge” drop, but someone with negative items already on their credit reports might see only a modest drop, FICO says.


The good news is that the negative effect of the bankruptcy will lessen over time. Lenders who check credit reports will learn about a bankruptcy filing for years afterward, specifically:

  • For Chapter 7, up to 10 years after the filing
  • For Chapter 13, up to seven years

Still, filing for bankruptcy doesn’t mean you can’t ever get approved for a loan. Your credit scores can improve if you stay up to date on your repayment plan or your debts are discharged, among other steps that can be taken. You may even be able to help your credit scores during bankruptcy by making the required payments on any outstanding debts, whether or not you have a repayment plan. Of course, everyone’s circumstances and goals are different, so always consult a professional with questions.


That said, realize that some lenders deny credit to any applicant with a bankruptcy on a credit report, according to VantageScore, which, like FICO, calculates credit scores.

Should I Apply for a Loan After Bankruptcy?

Before applying for an unsecured personal loan, meaning a loan is not secured by collateral, it’s a good idea to get copies of your credit reports from the three major credit reporting agencies: Equifax, Experian and TransUnion. Make sure that your reports represent your current financial situation and check for any errors.


If you filed for Chapter 7 bankruptcy and had your debts discharged, they should appear with a balance of $0. If you filed for Chapter 13, the credit report should accurately reflect payments that you’ve made as part of your repayment plan.


Next, you can consider getting prequalified for a personal loan and comparing offers from several lenders. They will likely ask you to supply contact and personal information, as well as details about your employment and income.


If you see a loan offer that you like, you’ll complete an application and provide documentation about the information you provided. Most lenders will consider your credit history and debt-to-income ratio, among other personal financial factors.


A heads-up on “no credit check” loans: They usually have high fees or a high annual percentage rate (APR).

If You’re Approved for a Personal Loan

Before you sign on the dotted line, it’s smart to take the following steps:

1. Read the Fine Print

Since you have or had a bankruptcy on your record, the terms of your offer may be less than favorable, so consider whether you feel like you’re getting a reasonable deal.


People with “average” to bad credit scores might see APRs on personal loans ranging from nearly 18% to 32%. Make sure you are clear on your interest rate and fees, and compare offers from different lenders to make the choice that works for you.

2. Avoid Taking Out More Than You Need

You’re paying interest on the money you borrow, so it’s generally better to only borrow funds that you actually need. Further, it’s probably wise to only take out as much as you can afford to repay on time since paying on time is an important key to rebuilding your credit.

If You’re Not Approved for a Personal Loan

If you are denied a personal loan, don’t despair. You may have options for moving forward:

1. Appealing to the Lender

You can try to explain the factors that led you to file for bankruptcy and how you have turned things around, whether that’s a record of on-time payments or improved savings. The lending institution may not change its mind, but there’s always a possibility the lender can adjust its decision case by case.


You likely have the best chance at an institution that you’ve worked with for years or one that is less bound to one-size-fits-all formulas — a local credit union, community bank, online lender or peer-to-peer lender.

2. Looking Into Applying With a Co-signer

A co-signer who has a strong credit and income history may be able to help you qualify for a loan. But keep in mind that if you can’t pay, the co-signer may be responsible for paying back your loan.

3. Building Your Credit

It’s OK to take some time to try to improve your credit scores before reapplying for an unsecured personal loan. You still have a chance to work toward reducing your other debt.

The Takeaway

Getting approved for an unsecured personal loan after bankruptcy isn’t impossible, but it’s a good idea to compare offers, go in with eyes wide open about interest rates and fees, and gauge whether it’s the right time to borrow.


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Bankruptcy and student loans: What you should know


When you’re struggling to pay back your student loans, what’s your next step? With Americans owing approximately $1.7 trillion in student debt, you’re not the only one asking this question. With bills piling up, some might even consider bankruptcy.


The question is, does bankruptcy clear student loans?


Well, it is possible to discharge student loans in bankruptcy but it is difficult and rare. Read on for information on types of bankruptcy and other requirements there may be in order to potentially qualify to have student loans discharged in bankruptcy.


Related: How do student loans affect your credit score?




It’s very unlikely. Discharging your student loans through bankruptcy requires proving to the court that you would suffer from “undue hardship” if forced to repay.


While this may sound like you—honestly, who doesn’t see that monthly payment as an undue hardship?—it’s worth thinking twice before contacting your nearest bankruptcy lawyer.


If it were easy to use bankruptcy to clear student loan debt, there probably wouldn’t be millions of Americans still making payments, so this isn’t something anyone should count on.


Bankruptcy is a way of clearing your debts—which adversely affects your credit—through the court system, whose job is to sort through your assets and determine what debts to forgive that you’re unable to pay.


People looking to discharge student loans would be required to file either Chapter 7 or Chapter 13 bankruptcy, according to the Federal Student Aid website.


Chapter 7 bankruptcy is also sometimes referred to as liquidation bankruptcy. In this case, assets of the person filing for bankruptcy will be liquidated—or sold—by the bankruptcy trustee.


There are some exceptions of “exempt” property, but everything else will be liquidated in the bankruptcy. Generally, people who consider Chapter 7 are those with minimal assets or a lower-income.


What is defined as an exempt property can vary from state to state. In general, it may be possible to preserve some home equity, furniture, clothing, and some other necessities.


Chapter 7 bankruptcy is generally filed as a last resort.


Chapter 13 bankruptcy can be referred to as a “wage earner’s plan.” In this case, people filing bankruptcy can create a repayment plan to pay off their debts.


Depending on the person filing’s financial situation, repayment may take place over either three or five years. Chapter 13 bankruptcy is more suited for individuals with valuable assets or who are earning considerable income.


In order to file Chapter 13 bankruptcy, certain debt limits must be met. As of this writing, unsecured debts, those not backed by collateral, must be less than $394,725. Any secured debts must be worth less than $1,184,200.


Gam1983 / istockphoto


So if nearly 20% of Americans with student loans are in default, why haven’t they declared bankruptcy? Simple: It’s extremely difficult to qualify to discharge student loans through bankruptcy.


After all, if that kind of legal loophole existed for student loan debt, there would be nothing to stop people from graduating college and then immediately declaring bankruptcy.


While bankruptcy could provide some relief to individuals who are overwhelmed by immense debts, doing so has serious consequences. Bankruptcy is generally a last resort and filing for bankruptcy can have lasting impacts on an individual’s credit score.


Individuals struggling to stay on top of their debts should carefully weigh all of their options before filing for bankruptcy. Some alternatives to consider may be consulting with a credit counseling agency or contacting your creditors to negotiate a repayment plan. It can also be helpful to meet with an attorney who can provide more detailed information and personalized advice.


To have a shot at student loans being discharged in bankruptcy, the person filing typically needs to file additional action with the court, known as an “adversary proceeding,” which is essentially a request that the court find that repaying the student loans would in fact be an undue hardship to both the individual and their dependents, if they have any.


Most, but not all, courts use the ‘Brunner Test’ to determine whether or not a borrower may qualify to discharge student loans in bankruptcy.


The qualifications for the Brunner Test include:

  • The borrower and their dependents cannot maintain a minimal standard of living if forced to keep paying their student loans. This is based on your income and expenses.
  • Additional circumstances exist indicating that your challenges are likely to persist for a significant portion of the student loan repayment period.
  • A good-faith effort has been made to try and repay the loans.

That criteria sets a high bar to qualify for discharging student loans in bankruptcy and in most cases, it takes extraordinary circumstances to do so.




In the unlikely event that the court finds that repaying the student loans would indeed put an undue hardship on the person filing for bankruptcy, there are a few different things that could happen.

  • The loans might be fully discharged. This means that the borrower will not need to make any more loan payments. All activity from collections agencies would stop too.
  • The loans may be partially discharged. In this case, a portion of the debt would be discharged. The borrower would still be required to repay the portion of the debt that is not discharged.
  • The loan terms may change. In this situation, the borrower will still be required to repay the debt. But there will be new terms on the loan, such as a lower interest rate.


Fortunately, there are alternative options to declaring bankruptcy.


For short-term solutions for federal student loans, deferring the loans or going into forbearance, could be options to consider if you qualify. These options allow borrowers to temporarily pause their student loan payments.


Unlike declaring bankruptcy, federal student loans in deferment or forbearance generally don’t negatively affect your credit.


Another option for federal student loans is switching to an income-driven repayment plan, which ties your monthly payments to your discretionary income.


If your income is low enough to meet the thresholds for these plans, this could bring payments down significantly, though interest will still continue to accrue.


Private student loan lenders may offer temporary assistance programs that could help borrowers who are struggling to make payments on a temporary basis.


It may also be worth negotiating: One option could be to contact the loan servicer or lender and ask for additional repayment options. In general, servicers or lenders would rather receive a smaller sum of money from you than nothing, so it’s typically in their best interest to work with you.


tommaso79 / istockphoto


Deferring loans and forbearance are ultimately short-term solutions. If you’re looking for a long-term solution to reduce student loan debt, refinancing could be worth looking into.


Refinancing your student loans means transferring the debt to another lender, with new terms and new (ideally, lower) interest rates.


Some borrowers may be able to qualify for lower interest than the federal rates depending on your financial standing. But, keep in mind that when federal student loans are refinanced, they lose all eligibility for federal student loan borrower protections—like the deferment, forbearance, and income-driven repayment plans mentioned above.


If you’re looking to refinance, make sure you do your research and see if you can find competitive rates with a lender you trust.


While it may be possible to discharge your student loans through filing for either Chapter 7 or Chapter 13 bankruptcy, doing so can be extremely challenging—and succeeding is very unlikely.


In addition to filing for bankruptcy, borrowers generally need to prove that continuing to repay the loan would place an undue burden on them and their dependents. And don’t forget: bankruptcy has considerable downsides, including the possible loss of assets and a substantial hit to your credit score that can last for years.


For federal student loan borrowers who are struggling with their student loan payments, deferment or forbearance may provide temporary solutions.


Federal student loan borrowers may also consider switching to an income-driven repayment plan, which ties their debt payments proportionally to their discretionary income. In some other cases, it might make sense to consider refinancing.


Learn more:

This article
originally appeared on 
SoFi.comand was
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Bankruptcy Information: This article provides general background information only and is not intended to serve as legal/tax or bankruptcy advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal/tax or bankruptcy advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
SoFi Student Loan Refinance
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636  Opens A New Window.. For additional product-specific legal and licensing information, see
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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