Home Equity Loan After Bankruptcy

If You Are Ever Considering Another Loan After Bankruptcy, Find Out Why It May Be Hard to Get

Treatment of Chapter 13 versus Chapter 7 bankruptcy

In considering you for a home equity loan after bankruptcy, lenders will look at whether you filed a Chapter 13 bankruptcy or a Chapter 7 bankruptcy. Lenders will sometimes look more favorably upon a home equity loan applicant who filed a Chapter 13 bankruptcy. This is simply because in a Chapter 13 bankruptcy, you pay your creditors through a payment arrangement, while in a Chapter 7 bankruptcy your debts are erased.

Requirement for time to lapse

Whether you filed Chapter 13 bankruptcy or Chapter 7 bankruptcy, lenders will look at how much time has lapsed since the discharge of your bankruptcy when considering you for a home equity loan. Lenders generally like to see at least two years and sometimes four years between the discharge of your bankruptcy and your application for a home equity loan. This time lapse shows lenders that you have had sufficient time to get back on your feet and get your financial affairs in order.

Establishing new credit

In addition to the lapse of time after bankruptcy, lenders will want to see that you are establishing new credit accounts. You will need to make purchases on credit and pay those accounts on time. Lenders want to see not only that you have established new credit accounts, but that you are able to manage those accounts effectively. Lenders will examine your credit report and look to see that you have not left any bills unpaid after bankruptcy. Lenders will be unlikely to approve a home equity loan application if you have not established any credit after bankruptcy. The lender needs to be shown that you have the ability to manage your finances and take on the responsibility for the repayment of the home equity loan.