Filing for bankruptcy can have a negative impact on your credit score and overall creditworthiness. However, it won’t necessarily preclude you from refinancing an existing home, car or other type of loan. Take a look at what you should know about reorganizing your debt after seeking protection from creditors in an Illinois court.
It may be easier to get a loan after filing for Chapter 13 protection
When you file for Chapter 13 protection, you agree to pay a portion of your outstanding debt balances over a period of three or five years. Since you are taking responsibility for your existing debts, lenders may be more willing to work with you to provide more favorable loan terms. In some cases, you may be able to refinance a home loan within a year of filing for a reorganization bankruptcy.
A Chapter 7 bankruptcy may eliminate all of your unsecured balances
It’s worth noting that filing for Chapter 7 bankruptcy may enable you to discharge credit card, medical and other types of unsecured debts. In most cases, this will happen in a matter of months as opposed to several years. Depending on your income, employment history and other variables, it may be easier to renegotiate the terms of a secured loan after a liquidation bankruptcy. This is because your debt-to-income ratio will be lower than it was prior to filing.
Refinancing a loan may allow you to make lower monthly payments or tap into positive equity. However, if you have recently filed for bankruptcy, it may be harder to get a lender to approve your request for new loan terms. It may be a good idea to speak with a lender representative about your refinancing options prior to submitting a loan application.