Key Takeaways:

  • You may get a personal loan in Chapter 13 for necessities like housing or a car
  • Your trustee must approve the new loan before funding, a hearing may be necessary
  • You may need a court hearing to determine if you qualify for a loan with Chapter 13
  • It can take 6 – 12 months to rebuild your credit after Chapter 13, it varies by person

Filing for Chapter 13 bankruptcy can be unavoidable in some situations. If you couldn’t repay your debts, a restructuring may have been necessary. But the repayment period lasts three to five years, depending on your situation. Since life happens in between those times, how do you get financing for large purchases?

The good news is that getting a loan with a Chapter 13 bankruptcy filing is easier than a Chapter 7 BK. However, there are certain nuances you must follow, including finding lenders that work with Chapter 13 bankruptcy cases.

So, your chances aren’t over if you are in the midst of a bankruptcy case. You may have a few more hurdles to cross, including proving that it won’t create more financial difficulties.

Is It Possible to Obtain a Personal Loan While in the Bankruptcy Process?

Most lenders won’t approve a loan request if you have an undischarged Chapter 7 bankruptcy. That’s because this type of bankruptcy dismisses most (if not all) debts, depending on the situation. Before a new lender lets you borrow money, they may require proof that you can handle your obligations. Improving your credit history by applying for a secured credit card or co-signed debt may help you build a better credit report.

If you filed a Chapter 13 bankruptcy, some lenders may be willing to lend you money, but there’s a catch: you need the trustee’s or court’s permission. It also depends on state laws, as not all states allow new loans until your Chapter 13 is satisfied.

Even if your state allows loans in Chapter 13, not all lenders allow it. You may need to shop around to find a lender willing to accept your credit score, income, and the fact that you’re in a bankruptcy case.

Steps to Get a Personal Loan While in Chapter 13 Bankruptcy

If you need a personal loan while in Chapter 13 bankruptcy, you must prove it’s necessary. They typically restrict new loans for immediate purposes for your family or household purposes. For example, a new car is necessary if your car breaks down and is unrepairable. However, this doesn’t mean they would approve a loan for a Corvette or expensive luxury car. Instead, they may approve a modest loan for a reliable and modest car.

Here are The Steps Needed to Get a Personal Loan While in Chapter 13 Bankruptcy:

1. Look for a Lender and Get Pre-Qualified

The first step is to determine if you can find a willing lender. Most lenders provide free pre-approvals with no obligation. Find a few lenders that allow Chapter 13 bankruptcies and see if they’ll accept your circumstances, including your credit score and income.

2. Get Bankruptcy Court Approval

After getting pre-approved and knowing you can get a loan if you have the court’s permission, take these steps:

3. Get a Sample Financing Statement

Ask your lender for a sample financing statement that includes all the details about the loan, including the term, interest rate, and repayment requirements. It should also include the purchase details, such as the car’s make, model, and year.

4. Complete the Trustee’s Paperwork

Your trustee court will require specific paperwork. Be sure to include as many details about the purchase as possible and explain why it’s necessary. Before approval, the trustee will consider how the new debt will affect your ability to stick to your repayment plan.

5. File a Motion

You must file a motion with the court. You should also send it to all creditors involved in the Chapter 13, your trustee, and any other interested party.

6. Attend a Hearing (if applicable)

Depending on the situation, you may need to attend a court hearing. However, if the purchase is crucial and the numbers work, the judge may dismiss the need for a court case.

7. Provide Lender With a Copy of the Court Approval

If you get the court’s permission to obtain a new loan, you must provide your lender with the approval letter. This is necessary to move forward with your loan funding, even if the lender pre-approved you for the loan.

Situations That Might Require New Credit During Chapter 13

Expect your bankruptcy attorney to frown upon a request for personal loans for anything unnecessary. In the court’s eyes, this means:

  • Replacing a broken-down and unrepairable car
  • Replacing a broken down and necessary appliance
  • Purchasing a house because a rent increase was unaffordable

Your purchase must make sense and not create a financial hardship preventing you from affording your repayment plan.

How Soon After Chapter 13 Bankruptcy Can I Get a Loan?

After repaying your Chapter 13 bankruptcy, you are free to apply for new loans. Some loans, like personal loans or auto loans, may offer immediate approval. However, expect the interest rates and fees to be higher than average. Others, like mortgage loan programs, may require you to wait a few years.

The key is to rebuild your credit during and after the Chapter 13 bankruptcy. Repay your debts on time, and don’t overextend yourself. Consider a credit builder loan if you are having trouble fixing your credit. This isn’t truly a loan but a way to build credit. The loan amount goes into a savings account while you make payments. If you repay the loan as agreed, you’ll build credit and receive the loan proceeds after making the last monthly payment.


How Long Does it Take to Rebuild Credit After a Chapter 13 Bankruptcy?

It can take a few months to a few years to rebuild credit after Chapter 13 bankruptcy. How long it takes depends on the type of credit you have, whether you make on-time payments, and how many credit lines you have outstanding at once. For the best results, try keeping your outstanding debt to no more than 30% of your credit limits.

What is the Waiting Period for a Car Loan After Chapter 13 Bankruptcy?

Some auto loan lenders require a six to 12-month waiting period after a Chapter 13 bankruptcy. However, some lenders may allow you to borrow money immediately. It depends on your credit history and income.

Can I Get an FHA Loan While in Chapter 13 Bankruptcy?

You must be at least 12 months into your Chapter 13 bankruptcy repayment plan and have the trustee’s approval to get an FHA loan. If you can’t get trustee approval, you may need to wait two years from your Chapter 13 to get approved.

Will My Credit Score Increase After Chapter 13 Bankruptcy?

Your credit score may increase after Chapter 13 bankruptcy, assuming you made your payments on time. The key is to continue making payments on time to all debts and keeping your outstanding debt amounts low to ensure a better credit score.

Final Thoughts

Some lenders work with Chapter 13 bankruptcies. Finding one that offers the rates and terms you can afford is the key. You must also convince your trustee and the court that you can afford the loan and repayment plan.

If you can’t find personal loan lenders that will approve your loan during a Chapter 13, a title loan lender may be able to help. Title loans are emergency loans for dire circumstances. If you’d like a free, no-obligation quote to see if you qualify, complete an application or call us at 888-700-8900 to learn more.

Written by Samantha Hawrylack

Written by

Samantha Hawrylack

Samantha Hawrylack writes for our company and is an expert in personal finance. Sam received her Bachelors of Science in Finance and her Masters in Business Administration from West Chester University of Pennsylvania. She began her career in the financial services industry and shifted to an entrepreneurial role where she could directly impact clients. Sam has an impressive background in personal finance and business management.