Getting a Home Equity Loan After Bankruptcy

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. Many lenders are hesitant about approving loans for people with a tarnished 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 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.