If you are wondering about the possibility of taking out personal loans after Chapter 13 discharge by a bankruptcy court trustee, you’ve come to the right place, and, yes you should have some good opportunities… provided that you have been making all bill payments, including those to the trustee, on time for the past 3-5 years.
I’m not just saying it, I’ve done it… after successfully completing a 5-year Chapter 13 repayment plan. For really realz, I literally spilled my guts about it on Loan Camel’s About Us page. I was the 6 figure income schmuck who had a perfect payment history and scores in the 700’s and did a Chapter 13 out of God knows what fear my attorney instilled into my Jewish neurotic brain. She didn’t do anything wrong. She did what lawyers do. But there were options I now understand which would have changed the way I managed my financial challenges.
Anyhow, I came out of a Chapter 13 with some debt and wanted to get it under control so I decided to consolidate credit card debt into a personal loan along with making some changes my spending habits where I could. Another words, I stopped buying sh-t I really didn’t need.
I need to reiterate this point as you cannot effectively change your financial life simply through debt consolidation loans alone. Consolidation loans simply help you move debt into a place that is more manageable so that you can pay it off at a date certain but YOU MUST CHANGE THE BEHAVIOR THAT GOT YOU WHERE YOU ARE, where possible.
I can only speak to discharge after a 5-year plan at this point as that was the plan they had Daddy Poorbucks, Debtor-in Chief of Loan Camel, on to pay off creditors. The only difference I see from a 3-year plan is that you are closer in time to when the Chapter 13 was filed with a 3-year plan, so technically, you are much closer to your default dates. It’s worth a try either way, regardless of the Chapter 13 bankruptcy plan term you were discharged from, but for the purposes of this post, I am talking 5 years after filing.
And yeah, much of the debt I built up stemmed from an expensive, cantankerous long distance divorce – over what I still don’t know – with unusually high visitation costs due to living in hotels during my first couple of years worth of weekends with my kids, as well as, some medical bills, but it doesn’t matter why at this point… for you especially. You’ve been discharged so you’re out, right?
Almost, but you’re on your way. And Loan Camel will help you through this while you build your credit up. And don’t feel badly about the past. You can and will change it for the better. And if someone says otherwise, whatever dude… you got this.
Always turn a negative into a positive and take pride in small victories. I’ve learned to take pride in my Chapter 13 class status. I was a successful Chapter 13 graduate and fortunate enough, like you, to be a Chapter 13 student and not a Chapter 7. 71+/-% of personal bankruptcies are Chapter 7. We’re like in the top 30%. It’s not Harvard but it’s a decent state school, right?
By the way, no disrespect to Chapter 7 “Dischargee’s” (yes, I made up that word – tough sh-t, it’s my post – I’ll do it again too) who can also follow this plan but it’s a little harder due to a 10-year wait (for Chapter 7) vs a 7-year wait (for Chapter 13) graduates to see the negative remarks drop from their respective credit reports.
Oh – speaking of which… Before we go any further. Yes, I am a lawyer. No, I do not practice anymore (too boring and I’m too ADHD) and no, I am not – not – I repeat – NOT in anyway providing anyone legal advice. Period. I am relaying my experiences as a consumer and my recommendations based on the personal success I had the good fortune of attaining after my own financial personal financial challenges. Disclaimer rant done. Back to Chapter 7 vs Chapter 13, in brief -ish.
If you do not know the difference, essentially, a Chapter 7 is a liquidation bankruptcy where your eligible debts are discharged in full, 3-5 months after filing and your assets are liquidated. This is for people with lower income streams, generally, who are not looking to protect assets.
With a Chapter 13, you are really doing a reorganization where you pay back a portion of your debts over a 3 or 5 year term to your lenders, at which point you are discharged from your debts. This is for people, generally, who have higher incomes as well as assets that they want to keep. While neither a Chapter 7 nor a Chapter 13 is scored differently on your credit scoring, there are lenders who look more favorably upon Chapter 13 graduates as they are seen as having tried to pay off their debts and, in fact, made 3 or 5 years of payments to their former creditors.
So all of this is why I consider us part of an elite club. However we F’d up and for whatever reasons we did whatever it is that we did or had happen in our lives, we still paid off our debts backed by a court order.
That demonstrates responsibility and some level of culpability. It will help with intangibles as well as you will see when you are applying for personal loans after Chapter 13 discharge. It helped me. I came out of Chapter 13 in the lower 600’s… and a 100% payment history on everything from filing. I got the personal loan assistance I needed and you will too. Here’s how this works and what we have to know and do next.
Now about that 5-year payment history – It starts with your Chapter 13 payment plan. You also have rent or mortgage payments, perhaps, cell phone bills, utilities, cable and home internet bills…etc. You need to have been making all of your payments on time. If you haven’t, you will be in a lower rated, higher interest rate category because of risk, if you can even qualify for a loan.
Before I went into Chapter 13, I had a credit card with no balances on it. I did not close the account and I did not report it. I’m not saying to do what I did as there are rules but I used that card to help me get by for 5 years during my payment plan. During the Chapter 13, I also had a Target Red Card, which again, should be attained with permission of the court as you are applying for new credit. I had these cards with zero balances prior to filing Chapter 13. As I was using these cards, I now had revolving balances but I always made my payments on time. I came out of Chapter 13 with debt but a solid 5-year payment history on these cards, as well as a solid payment history on my mortgage and car loan, which I excluded from the Chapter 13 filing and repayment plan.
One thing they did not have back when I was in Chapter 13 was Experian Boost. Experian is one of the big 3 of the credit bureau Godfathers. They offer a free service where you allow them access to your accounts and by making your payments promptly over time, Boost literally boosts your credit score. I would recommend going on this free plan immediately once you have filed bankruptcy.
If you do not use Experian Boost already, I encourage you to sign up now by going to Experian here as it’s better to start now than never. Just the other day, Boost found my cell phone account, saw the past 6 months of payments and boosted my Experian score by 7 points. These are the easy little cost-free things that you can do to build your credit up.
If I had been discharged from my chapter 13 bankruptcy with 5 years of Experian Boost recording payments and adjusting my scores, I would have come out of Chapter 13 in even better shape… but remember – you must pay all of your bills on time for any of this to work. And even without Boost, I came out with scores in the lower 600’s. Two years later I was in the 800’s… because I did a lot of what I am now telling you to do. Stay with me… stay with me guys.
Just know that there’s only so much you and I can do to help you if you are not paying bills on time – real talk, biotches. If you want to be a successful Chapter 13 graduate and have the ability to take out personal loans for debt consolidation (or if needed – for a necessary expense), you’ve got to act like you belong in the club. I’m not enabling people who won’t try or can’t do the basics. If that’s you, you need to get it together and build up your payment history. Payment history counts for 35% of your credit score. Between that and income, it goes a long way in the loan approval process.
And so we’re clear, biotches isn’t gender specific… I learned it from Snoop Dogg and Paris Hilton. There goes my ADHD again. Huh??? If you do these things or have been doing them, at least paying bills on time, you have set yourself up for the next step.
I think I was getting offers for personal loans before my Chapter 13 was discharged but again, I do not know what rate I would have gotten let alone if I would have been approved before discharge without trustee approval and I would not advise anyone to take on new debt without such approval.
You should apply as soon as the bankruptcy is discharged like I did. Your rates will still be higher at year 5 than at year 7 but you are not only building credit payment history, but by consolidating debts from credit cards, you are essentially doubling your open credit lines and lowering your credit utilization rates which will boost your score after a potentially early temporary drop.
One thing that will hurt for a while will be the younger age of new accounts which will be negatively scored as your credit looks very new after discharge. You don’t have your formerly available credit cards closed in bankruptcy to show credit age. You also don’t have a mix of credit out there like personal loan lenders like to see but now you are starting to add that. If you get a car loan, that’s more to the mix – Yo, don’t go crazy. I’m still driving a car with over 150,000 miles. I can get a new one but why right now? See, I learned not to buy just because I can.
Learn to love your debit card. I’ve said it before. Every time I use my debit card, I am keeping my spending in check, lowering my anxiety and honestly – I feel more powerful. It’s so much more empowering to pay with what you have than to start sliding… Believe me I know… I’ve slid… more than once.
And whatever you do, please – Do not close any of your now zero balance credit card accounts. Doing so will hurt your scores in terms of credit mix, age of accounts and credit utilization ratios. It’s counter-productive.
You should know that the further you get away from discharge, the lower your loan rates will be. I am still a proponent of taking out loans at discharge as a means to streamline bill payments and build up credit but make certain that you can afford the payments and it makes sense for you. I took out another loan just before the bankruptcy dropped and I forfeited the benefits of an 80 point increase so if you are close to the 7 year mark, wait for it to clear on your credit reports if you can before applying.
Literally, the day it dropped off my report I had credit scores in the 800’s! You can too. If you’ve seen the lack of order in my car or my bedroom, you’d have more confidence in yourself. I’m an easy bar to pass and I want you to pass me. So let’s do this.
So after discharge from Chapter 13, you will continue to make all payments on time 100% of the time. You will sign up for Experian Boost, if you haven’t already, to help build your credit even quicker and you will use a personal loan to consolidate any debts you would like to streamline and manage. This will not only make your bills more manageable and provide you with a date certain payoff but it will increase your credit scores.
The mere consolidating of debt by paying off of my cards with a personal loan boosted my scores over 20 points. To do what Daddy Poorbucks did to get myself up multiple levels on the credit score hierarchy, you can check out your potential rates through Loan Camel’s Personal Loans page here and even apply for loans from a mix of potential lenders competing for your business.
Using personal loans after Chapter 13 discharge can immediately help you manage finances and build credit scores up to the next levels. It worked for me. It really can work for you as well. If you do as I did I have plus use other tools I have discussed, I have no doubt that you will see even faster results. You have the benefit of my mistakes. I suffered so you don’t have to. Our goal here at Loan Camel is simply helping people over the hump. Go get em!
For additional information on alternatives to filing bankruptcy, please see the U.S. Federal Trade Commission (FTC) article entitled Debt Relief or Bankruptcy?