When evaluating whether to give a borrower a loan after bankruptcy, lenders
look to the “Four C’s of Credit” — Credit history,
Capacity to repay, Cash to close, and Collateral.
Credit history: Bankruptcy will obviously be a factor in your credit history, but a lender
will also look at your overall credit history (before and after the bankruptcy)
rather than focusing on a single event. Learn ways to rebuild your credit
Capacity to repay: Capacity to repay a loan mainly involves having enough income to afford
the monthly payments in addition to your other bills. Since bankruptcy
wipes out a lot of debt you may have otherwise been carrying, you no longer
have to make those monthly loan payments. In this way, bankruptcy likely
improves your capacity to repay a new loan.
Cash to close: This one is pretty straightforward. A lender will look at how much cash
you have in a savings account or other liquid account that you can use
for a down payment toward a loan. After bankruptcy, make an effort to
build your savings.
Collateral: Collateral could be any asset you own to “secure” a new loan,
such as a car, equity in your home, a savings account, etc. For instance,
you may be able to get a secured credit card by putting up cash toward
the credit limit (i.e. 50 percent of the limit). However, collateral can
also mean the asset itself for which you are seeking the loan. For example
on a car loan, the car itself is the collateral. If you can make a 10
percent to 20 percent down payment on the car, then the lender may be
more confident to give you the loan knowing that there would be enough
“equity” in the car to pay off the loan if needed.
Remembering the “Four C’s of Credit” is an easy tool
to help you focus your financial efforts to qualify for a loan after bankruptcy.
Work on each of these four areas and before you know it bankruptcy will
just be a thing in your past.
To learn how bankruptcy will affect your particular situation, contact
Chula Vista Bankruptcy attorney Kerry Denton at Denton Law Group for a
free consultation. Call (619) 458-3739 today and be on your way to a new