Getting
A Loan After Declaring Bankruptcy
Here
is a question from somebody: "I've filed bankruptcy about a
year ago. I understand that a secured credit card would help to
re-establish my credit. What I want to know though is that even
if I've filed bankruptcy, is it possible for me to obtain a personal
loan? If so, do you know of any establishments that would offer
loans to someone who has filed bankruptcy?"
With
about 1.6 million personal bankruptcies occurring in the last year
the person above had company. And, in a society where the availability
of consumer debt is assumed, the person has a real problem.
Before
we get into specifics, let's learn a little about credit and debt.
The first known use of credit was about 3,000 years ago in Assyria,
Babylon and Egypt.
It appears
that debt came to American with the Pilgrims. They consolidated
their debts in London and made four installment payments.
Store
credit was common all the way back in colonial times and has been
popular throughout our nation's history. Many items, including sewing
machines and vacuum cleaners, were introduced into our homes on
the installment plan.
The first
credit card came out in 1951 and was only good at 27 New York restaurants.
Once the magnetic strip was introduced in the early 1970's the use
of credit cards skyrocketed.
But,
having all the credit available has a dark side. Some people take
on too much debt and have trouble repaying their loans. Thus the
need for bankruptcy protection. Our current bankruptcy law was passed
in 1978 and amended in 1984.
We've
come a long ways from the debtor's prisons that existed until the
early-1800's. Yet, even today you can land in jail for committing
debts of fraud and child support.
With
a few exceptions (student loans, child support and alimony), bankruptcy
wipes out all debts. That's the good news.
But,
as the person found out, the bad news is that a bankruptcy is the
worst thing that you can have on your credit report. Depending on
the circumstances it can remain there for up to 10 years.
So where
does that leave the person. He's looking for a personal loan. Hyperdictionary.com
defines a personal loan as "a loan that establishes consumer
credit that is granted for personal use; usually unsecured and based
on the borrower's integrity and ability to pay".
So the
lender doesn't have anything to repossess. Just the person's promise
that he'll repay the loan. And by declaring bankruptcy before, he's
already demonstrated that he's willing to walk away from her debts.
Can the
person find someone who will give him a personal loan? Yes, possibly
he can. But unless he borrows from a friend or relative, he can
expect to pay much higher rates than someone with an average credit
report.
Where
would the person find a loan? He might want to try online using
a search for "subprime personal loan". Or look for a business
that offers 'payday loans' or 'signature loans' locally.
But a
better question for the person to ask is should he take the loan
if he can find it. And the answer in almost all situations is no.
First, he'll be paying very high interest rates on the money he
borrows. That means that he can't afford to borrow except for a
very short period of time.
Second,
it makes it harder to repair his credit rating. As he pointed out,
he needs to get a secured card to begin the rebuilding process.
A secured card will require him to save money first and then deposit
it on account.
A personal
loan with a high rate of interest will make it impossible for him
to save the money needed to obtain a secured card. That means he's
going backwards.
The person
didn't say why he wanted the personal loan. But unless it's absolutely
vital, he'll be better off avoiding a personal loan at this time.
That probably means not buying something that he really wants or
may even feel that he needs. And, that's hard. But given his circumstances,
borrowing money today could make the future just that much harder.
Which is probably something that the person really doesn't need.
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