Getting a Home Equity Loan After Bankruptcy

home equity loan

Obtaining a home equity loan after your bankruptcy may be more difficult than you think.

Lenders require both the lapse of time and good credit history after discharge from bankruptcy. Unlike payday loans that are possible to get approved for even if you have a bad credit score (find out more about payday loans here –, home equity loan lenders are hesitant about approving loans for people with poor credit history. Some require at least 5 to 7 years.

Many people feel that offering a loan to someone who recently got out of debt or bankruptcy is like offering a liquor license to someone who recently graduated from rehab. The question should is, “Are there options for those who need a financial boost after bankruptcy?”

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.

Whether you filed Chapter 13 bankruptcy or Chapter 7 bankruptcy, lenders will look at how much time has elapsed 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.

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.

Lender treatment of your Chapter 7 or Chapter 13 Bankruptcy

In general, lenders treat either type of filing in the same manner. You may have filed a Chapter 7 bankruptcy, which allows you to erase the majority of statutorily erasable debt or a Chapter 13 bankruptcy, which will result in a payment plan with each of your creditors. No matter which type of bankruptcy you have filed, lenders will require both a lapse of time from the discharge and establishment of new credit before considering you for a home mortgage after bankruptcy.

Time must elapse before applying for a home equity loan.

Lenders will require a lapse of time of two to four years from the discharge of the bankruptcy before even considering granting you a home mortgage. A lender wants to see that you have had sufficient time following the discharge of the bankruptcy to reestablish yourself and your financial affairs. Unfortunately for most lending institutions, this is a mandatory requirement that may prohibit you from obtaining a home mortgage within the first two to four years following your discharge from bankruptcy.

How to re-establishing your credit history

Even after the requisite two- to a four-year waiting period, before a lender will consider you for a home mortgage, a lender will want to see your ability to re-establish your credit.

New credit shows the lender that you have taken and can handle the responsibility of managing your credit accounts. Lenders will want to see at least two years of purchasing and paying the new credit on time.

This means with the new credit that you establish, following the discharge from bankruptcy, you must make all payments on time and according to the payment contract. You must be establishing good credit for a lender to consider your application for a home mortgage after your bankruptcy.

When using the internet, phone listings or maybe just a referral from a friend you should always make sure to double-check and ask the company if they give free quotes on debt consolidation and always look around for the best deal, because there are many companies out there willing to work with you, now all you have to do is find them.

In addition to the Internet, there are several options available to those with a tarnished credit history such are credit counseling services. It’s good to know that there are avenues to take in life when living with debt…a person doesn’t have to settle for high interested rates and a lifetime of a bad credit reputation.

Carolyn Rhea

Hi,I am Carolyn Rhea, author of NIME 2016. Money management tips can help you and your family feel more financially secure.