Bankruptcy & Refinancing
Many people may believe refinancing after bankruptcy is impossible. However, there are many options after bankruptcy in regards to refinance. Most of the options will require hard work, but it will lead to regained financial stability. You will need to rebuild your credit history and search for the right lender to refinance your loan.
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Rebuilding Credit History
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It is essential to rebuild your credit history to qualify to refinance your loan after a bankruptcy. Most lenders will look at your credit report to determine your credit worthiness. If you filed a Chapter 13 bankruptcy it will stay on your credit report for seven years. A Chapter 7 bankruptcy will follow you for 10 years. To rebuild your credit history you need to pay bills on time. Saving will help you accumulate assets, which are an important consideration in credit ratings. On-time payments of two different types of debt, installment and revolving, are needed to rebuild credit.
Secured Credit Cards
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You will need to have revolving debt to which you have been making timely payments. The most common type of revolving debt is credit cards. However, after a bankruptcy you may find it difficult to find a credit card company that will issue you an unsecured credit card. A possible alternative would be to obtain a secured credit card, which requires you to pay an amount up front to cover the credit limit. Typically, this is about a $200 to $500 credit limit. Eventually many of these secured credit cards revert into unsecured credit cards.
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Student Loans
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Student loans usually cannot be discharged in a bankruptcy. Although this may seem like a bad thing, there is a bright side to this situation. If you continue to make payments on time you may be able to use the student loans to rebuild your credit history. Also, you may want to make payments more than is required, which will reflect positively on your credit report. Student loans are considered installment loans, which are necessary for rebuilding creditworthiness.
Auto Loans
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Another type of installment loan is auto loans. Although auto loans can help to rebuild your credit rating, you will probably be charged extremely high rates in the beginning. If you do choose to obtain an auto loan to rebuild credit, you should make sure you make a large down payment. Also, choose a loan without a prepayment penalty. Having a gross income of at least $2,000 or a cosigner would make finding an auto loan easier.
Choosing the Right Lender
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When you are ready to look for a lender to refinance you should consider many options to find the right loan for your particular situation. Most lenders will not handle a mortgage refinance after bankruptcy; however there are subprime lenders who will. These lenders generally will charge you a higher interest rate and additional fees to take on your loan. You should make sure you are aware off all hidden fees, which many lenders may not mention upfront.
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References
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