Securing a Loan with a Credit Union After Bankruptcy: A Guide

Bankruptcy can feel like the end of the road for your financial future, but it doesn’t have to be. Rebuilding credit after filing for bankruptcy comes with stress and uncertainty. One of the best options for securing a loan after bankruptcy is working with a local credit union.

Credit unions often take a more personalized approach than big banks. They’re willing to look beyond the numbers on your credit report and consider factors like your income, employment history, and overall financial situation.

When you’re working with a credit union, they will see you as a person, not just a credit score. Credit unions offer a variety of loan options that may be accessible even with a bankruptcy on your record, helping you get back on track financially.

Understanding Credit Union Loan Options After Bankruptcy

Credit unions offer several types of loans that may be accessible even with a bankruptcy on your record:

• Secured personal loans
• Credit-builder loans
• Share-secured loans
• Auto loans
• Secured credit cards

The key is finding options that minimize risk for the credit union. Secured loans, where you put up collateral such as savings as a guarantee, are often easiest to get approved for after bankruptcy.

For example, you might start with a small secured personal loan. The credit union might hold $500 of your savings as collateral and give you a $500 loan. Making on-time payments on that loan will help you start rebuilding your credit score right away.

How Soon Can You Get a Credit Union Loan After Bankruptcy?

This is one of the first questions people ask when exploring their options after bankruptcy. The answer depends on a few factors:

• Type of bankruptcy you filed (Chapter 7 or Chapter 13)
• When your bankruptcy was discharged
• Your current income and employment situation
• The policies of individual credit unions

In general, you’ll have better luck if you wait at least six months after your bankruptcy is discharged before applying, but some credit unions may require you to wait a year or more.

The amount of time you should wait to apply also depends on the type of bankruptcy you filed. If you file Chapter 7, your bankruptcy may be discharged in about four months. You would then want to wait another eight months before applying for a loan.

Having a stable job and rebuilding your savings will help show the credit union you are getting back on your feet financially.

Steps to Improve Your Chances of Approval

Securing a loan with a credit union after bankruptcy takes some preparation. Here are some steps you can take to improve your odds of getting approved:

1. Join a Credit Union

If you’re not already a member, join a credit union in your area. Look for one that specializes in working with members who are rebuilding credit. You may need to open a savings account and maintain a small balance to establish membership.

2. Build a Relationship

Don’t just join and immediately ask for a loan. Take some time to build a relationship with the credit union by using their checking and savings accounts. Consider setting up direct deposit for your paychecks. The more they see you as an engaged member, the more likely they are to work with you on a loan.

3. Save Up a Down Payment or Collateral

Having some skin in the game makes a big difference. Save up at least a small down payment or offer collateral. This reduces the credit union’s risk in lending to you.

4. Improve Your Debt-to-Income Ratio

Focus on paying down any remaining debts and avoid taking on new debt. The lower your debt-to-income ratio, the better your chances of loan approval. Creditors and lenders use your debt-to-income ratio to measure your ability to manage the monthly payments you make.

5. Stabilize Your Income

A steady job with consistent income is crucial. If possible, stay at your current job for at least six to 12 months before applying for a loan. Lenders look for a two-year history of employment, so a stable work history is important to them when evaluating your application.

6. Get a Co-signer

If you have a family member or friend with good credit willing to co-sign, this can significantly improve your chances of approval. Just be sure you can make the payments, as missed payments will hurt their credit too. Adding a cosigner to your loan means both of your credit histories will be impacted by this loan.

7. Be Honest and Upfront

Don’t try to hide your bankruptcy or other financial struggles. Be open and honest about your situation and your plans for rebuilding your finances. It’s also a good idea to be honest with yourself about what you can afford so you do not get in over your head.

Understanding Credit Union Cross-Collateralization

One thing to be aware of when getting a loan from a credit union after bankruptcy is cross-collateralization. This is a common practice at credit unions that can impact your loans.

Cross-collateralization means that collateral for one loan can be used to secure other loans with the credit union. For example, if you get a car loan and later take out a personal loan, your car might serve as collateral for both loans.

This can be both good and bad. It may help you get approved for additional loans. However, it also means that if you default on one loan, you could lose the collateral securing multiple loans.

Here’s a simple table to illustrate how cross-collateralization might work:

Be sure to carefully read your loan agreement and ask about cross-collateralization policies before taking out a loan. Understanding the terms of your loan will save you a lot of headaches down the line.

Rebuilding Your Credit with a Credit Union Loan

Once you’ve secured a loan, it’s crucial to use it wisely to rebuild your credit. Here are some tips you can use:

• Set up automatic payments to ensure you never miss a due date.
• Pay more than the minimum whenever possible.
• Keep your credit utilization low on any revolving credit accounts.
• Don’t apply for too many new credit accounts at once.
• Monitor your credit report regularly for errors or signs of identity theft.

Remember, rebuilding credit takes time. Be patient and consistent with your payments. Over time, you’ll see your credit score start to improve.

Alternative Options if You’re Denied

If you’re denied when trying to secure a loan with a credit union after bankruptcy, don’t give up. Here are some alternatives to consider:

Secured Credit Cards

Many credit unions offer secured credit cards, which are easier to get approved for than unsecured credit cards. You put down a deposit that serves as your credit limit. Using this responsibly can help rebuild your credit.

Credit-Builder Loans

These loans are designed specifically for people rebuilding credit. The money you borrow is held in a savings account while you make payments, then released to you when the loan is paid off.

Peer-to-Peer Lending

Platforms like Prosper or LendingClub connect borrowers directly with individual lenders. They may be more willing to work with you post-bankruptcy than traditional lenders. Be aware that these loans often come with much higher interest rates.

Friends and Family

If you have a trusted friend or family member willing to lend to you, this can be a good option. Just be sure to treat it like a formal loan with clear terms and repayment plans to avoid damaging relationships. It’s important to remember that if you do not pay this back, it can affect your relationship with those you love the most.

FAQs about Getting a Loan After Bankruptcy

Will a credit union give you a loan after bankruptcy?

Yes, many credit unions will consider giving you a loan after bankruptcy, especially if some time has passed since your discharge. They often take a more holistic view of your financial situation than traditional banks and online lenders. They may offer competitive interest rates as well.

Can you get a secured loan after bankruptcy?

Secured loans are often easier to get after bankruptcy because they pose less risk to the lender. Many credit unions offer secured personal loans, auto loans, or secured credit cards to help you rebuild credit. Getting a secured credit card is a good way to start rebuilding your credit after bankruptcy.

Can you borrow money if you are in bankruptcy?

It’s generally very difficult to borrow money while you’re actively in bankruptcy. Most lenders, including credit unions, will want to wait until your bankruptcy is discharged before considering you for a loan. It will be difficult to get approved for a mortgage loan, for example, until your bankruptcy has been discharged.

Can I get finance after bankruptcy?

Yes, you can get financing after bankruptcy, but it may take some time and effort. Credit unions, secured loans, and credit-builder products are often good places to start rebuilding your credit and accessing financing post-bankruptcy. You will want to make sure you have a good understanding of personal finance.

Conclusion

Getting a loan after bankruptcy isn’t always easy, but it’s definitely possible. Credit unions often take a more personal approach to lending, looking beyond just your credit score to understand your full financial picture.

By taking steps to improve your financial stability, building a relationship with a credit union, and being patient and persistent, you can start rebuilding your credit and accessing the loans you need. Remember, bankruptcy is a fresh start, not a life sentence. With time and responsible financial management, you can rebuild your credit and achieve your financial goals.

Don’t be discouraged if you face some rejections along the way. Keep working at it, and you’ll find opportunities to move forward financially. To schedule a free consultation with The Law Office of William Waldner, contact us today. We can help determine if bankruptcy is the right financial move for you!