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Does bankruptcy mean a filer can’t get a new loan?

On Behalf of | Jul 24, 2023 | Bankruptcy

Those who are considering bankruptcy are often (understandably) concerned about their financial future. They know that their current debt is unsustainable. They know that they need to pursue a fresh start. But they’re (again, understandably) worried about what filing for bankruptcy is going to mean moving forward.

Often, their biggest concern is that they won’t be able to get a line of credit or a loan for something that they want to purchase. For example, maybe someone is living in an apartment, but they’ve always wanted to be a homeowner. They were planning to apply for a mortgage. Naturally, they are worried that filing for bankruptcy will mean that mortgage lenders would not give them a loan and they will never be able to buy the house that they want.

Rebuilding credit history

It’s important to clarify that people still can get loans and lines of credit after filing for bankruptcy. They can get credit cards, they can get car loans and they can get mortgages. They may just need to wait some time before making an attempt to secure new lines of credit. Rebuilding credit takes time. A filer can make progress by ensuring that they make all future payments on time and getting a secured credit card. A secured card can be provided with a down payment, so it’s much easier to get than a traditional credit card.

Making monthly payments on time slowly builds a person’s credit back up all the same, to the point that their credit score may get high enough that they are eligible for home mortgages and other types of loans. In fact, in some ways, filing for bankruptcy may give someone a better chance of getting a mortgage in the future. Someone who has outstanding debt that they can’t afford is just missing monthly payments. That is going to ruin their credit score and make it very difficult to get a mortgage. Using bankruptcy to clear up the debt allows them to start making payments on time again, building their score back up and show that they can be a trustworthy borrower.

Getting the process underway

Those who are facing this type of debt can benefit from considering all of their options. It’s very important to know what steps they can take to secure the financial future they’re looking for. Seeking legal guidance can help to provide this clarity.