Obtaining Loans After Bankruptcy

Will I be able to obtain loans after filing bankruptcy in Arizona?

Once you have filed for bankruptcy or received your discharge, there are probably many questions floating around your head. One important question is how you can obtain loans for life purchases, such as buying a vehicle or a home.

There are still ways to obtain loans after bankruptcy even if it is more difficult. You should take several steps before you look into applying for personal loans, vehicle loans, or a mortgage after bankruptcy.

Evaluate Your Finances: You may or may not need the loan in the first place. If you can find cheaper alternatives, that is better for your credit and for developing a budget. It is also best to pay cash when possible.
Work to Re-establish Your Credit: Your credit score can drop from 130 to 240 points when you declare bankruptcy.¹ Most approved lenders will look to your credit history to determine your credit risk, which makes your credit score very important. There are ways to build up your credit, such as budgeting correctly and using a secured credit card.²
Look for the Right Lender: You will want to make sure you choose an approved lender and ask each lender about the rates they offer.

Car Loans

So, you are shopping around for a car. After you have evaluated your financial situation, whether you can obtain a car loan depends on the type of bankruptcy you filed. For example, Chapter 7 bankruptcies are much shorter in duration. You may receive a discharge within four to six months, in which case you can show a lender that you are no longer in the middle of a bankruptcy case.³ You can submit discharge information with your loan application.⁴

However, in a Chapter 13 bankruptcy you typically follow a repayment plan that can take three to five years.⁵ You may need to obtain court permission to take out a loan if your case is still open.⁶ This means you will need pre-approval for the loan so you can send in detailed documentation to the court and so you an amend your expense schedules.⁷

Home Mortgage Loans

Obtaining a home mortgage loan is a little bit more complicated, because formalities depend on the type of loan you want to take out and the type of bankruptcy you filed.⁸The chart below shows you a few formalities you will have to go through for various types of loans.

Loan Type	Formalities
FHA and VA	Chapter 7There is a two year wait period from the date of discharge.⁹ For FHA loans, you will need two lines of credit or you must supplement forms.¹⁰You will also need to provide a full explanation of your bankruptcy with your FHA loan application.¹¹ Chapter 13 You must make one year of payments under your repayment plan and obtain bankruptcy court approval.¹² FHA loans require explanation of bankruptcy.¹³
USDA	Chapter 7There is a three year wait period from the date of discharge before you can apply for these loans.¹⁴ Chapter 13 You must make at least one year of payments according to your repayment plan with court approval or wait one year after the case is discharged.¹⁵ Higher credit scores bring more flexibility and help your chances of loan approval.¹⁶
Conventional	Chapter 7You must wait four years after your case is discharged in addition to proving your credit is good and you have a steady source of income.¹⁷ Chapter 13 You must wait two years after your case is discharged in addition to good credit and a steady source of income.¹⁸

In addition to these requirements, you will most likely need to meet loan criteria such as a good debt-to-income ratio, a large cash down payment, and a timely repayment history.¹⁹

[1] Chris Birk, How a Bankruptcy or Foreclosure Affects VA Loan Applications, veteransunited.com (July 27, 2011), http://www.veteransunited.com/valoans/how-a-bankruptcy-or-foreclosure-affects-va-loan-applications/.
2 See Jeremy M. Simon, 4 ways to re-establish credit after bankruptcy, creditcards.com (Aug. 3, 2007), http://www.creditcards.com/credit-card-news/regaining-credit-after-bankruptcy-1265.php.
3 Rebecca McDowell, Getting a Car Loan After Bankruptcy, nolo.com, http://www.nolo.com/legal-encyclopedia/getting-car-loan-after-bankruptcy.html (last visited Mar. 17, 2014).
4 Id.
5 Id.
6 Id.
7 Id.
8 Rebecca McDowell, When can I get a mortgage after bankruptcy?, nolo.com, http://www.nolo.com/legal-encyclopedia/when-can-i-mortgage-after-bankruptcy.html (last visited Mar. 17, 2014).
9 FHA Requirements: Credit Guidelines, fha.com, http://www.fha.com/fha_requirements_credit (last visited Mar. 17, 2014).
10 Id.
11 Id.
12 Id.
13 Id.
14 Underwriting Guidelines, rurdev.usda.gov (July 2009), http://www.rurdev.usda.gov/supportdocuments/ca-sfh-grhunderwritingguide.pdf.
15 Rebecca McDowell, supra note 8.
16 Sean Stephens, How do you Qualify for a USDA Loan after a Chapter 13 Bankruptcy?, usdaloanpro.com (Sep. 27, 2013), http://www.usdaloanpro.com/blog/2013/09/27/usda-loan-after-chapter-13-bankruptcy/#.UyfCbfldVtE.
17 Mortgages After Bankruptcy: A Guide to Applying and Succeeding, mortgagecalculator.com, http://www.mortgagecalculator.com/mortgages-after-bankruptcy/ (last visited Mar. 17, 2014).
18 Id.
19 Id.