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What Is a Bankruptcy Loan?

A bankruptcy loan is a kind of loan that an individual may take out after filing for bankruptcy. More than filing for bankruptcy, though, the petition must be approved and granted by the court before a bankruptcy loan can be given by a lender. This kind of loan is extended by a creditor with the goal of assisting an individual rebuild his credit after filing for bankruptcy. A bankruptcy loan is governed by the usual laws, with some additional conditions.

In some cases, an individual may request a bankruptcy loan right after he is granted bankruptcy by the court. If this situation arises, the amount granted for a bankruptcy loan is often limited to a manageable amount. This is not surprising at all as people who have filed for bankruptcy are considered high risk borrowers. However, the provision does exist as a means for people to pay off any other lingering debts.

In other cases, a person has to wait for a certain period before he can be eligible for a bankruptcy loan. If, for example, a person files for and is granted a Chapter 7 bankruptcy in the United States, he has to wait for at least two years before qualifying for a bankruptcy loan. On the other hand, if a person files for and is granted a Chapter 13 bankruptcy, he has to wait till his debts are paid off in accordance with the plan approved by the court.

One important consideration for people who have filed for bankruptcy is that he does not accumulate more debt. He has to ensure that his bills and other obligations are kept current and paid on time. This will not only help in qualifying for a bankruptcy loan, but will also assist in rebuilding credit.

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