It may come to surprise many people but bankruptcy loans exist and are used often by Australians who are currently in the process of applying for bankruptcy, currently bankruptcy or a discharged bankrupt. So what exactly are bankruptcy loans, what can they be used for, who can qualify and what should you consider before applying for a bankruptcy loan?

What are Bankruptcy Loans

There are many types of finance facilities which fall under the umbrella of ‘bankruptcy loans’. In general however these will either be non-conforming lender and generally what is known as ‘private lending’. What this means is that borrowers in this space will be borrowing from small independent lenders, not larger mainstream banks that you might be familiar with.

I thought you couldn’t qualify for loans when bankrupt?

Thankfully that’s not the case. Whilst most lenders won’t provide lending options to bankrupt clients, there are niche private lenders who can provide lending options. These loan products can be used to help avoid falling into bankruptcy and paying out creditors for debts owed. Generally you will not be able to use the funds for personal uses unless you’re a discharged bankrupt.

What can bankruptcy loans be used for?

Bankruptcy loans can be used for a number of purposes, especially depending on what stage of bankruptcy the borrower is in. If recently bankrupted, under a Part IX Debt Agreement or at the point of potentially declaring bankruptcy, bankruptcy loans can be used as an option to pay existing creditors. The benefits of this can be to consolidate debts, gain time to allow the borrower to resolve their financial situation (ie if they can sell assets or gain access to funds to pay back the debt and avoid bankruptcy), or to reduce their current repayment obligations.

Discharged bankrupts have a greater amount of lender options including a number of second tier non-conforming lenders who can provide lending options, albeit still at higher interest rates than mainstream standard lending.

What are some of the eligibility requirements for Bankruptcy Loans?

Each lender will have unique requirements for their bankruptcy loans, however there will be some common requirements. In general due to the poor previous debt repayment history to end in bankruptcy, lenders will almost always require security significantly more in value than the debt being funded. Whether this is through business assets, real estate assets or otherwise, this provides the lender recourse to recuperate their funds should the bankruptcy loan go into default.

Things to consider before applying for a bankruptcy loan

When looking at finance options whilst facing bankruptcy, currently bankrupt or as a discharged bankrupt, you need to consider whether it is essential to apply for finance at this time. With bankruptcy loans you will generally pay significantly higher setup fees, ongoing fees, interest rates and exit fees compared to traditional finance. If you’re able to avoid applying for finance during this period or find alternative lending options, you can potentially save yourself significant funds. If you’re unsure whether you should apply for finance in your financial situation, speak with your accountant, financial advisor and finance broker to get a total understanding of whether finance would be appropriate for your situation, the likelihood of approval and costs involved in getting a bankruptcy loan.

Our finance team are specialist lending options for bankruptcy loans. Whether you’re facing bankruptcy and looking for alternative options to help you through this period, are a current bankrupt or a discharged bankrupt looking for lending, contact us today for a no obligation private discussion.