Filing for Chapter 13 bankruptcy can be a difficult financial journey, but completing the process and receiving a discharge offers a fresh start. Many homeowners, ask us, if they can get a Home Equity Line of Credit or HELOC after a Chapter 13 discharge. While the path to getting approved for a HELOC post-bankruptcy is not without challenges, it is certainly possible with the right financial strategy, patience, and lender selection. Most home equity lenders have strict HELOC eligibility criteria—especially for applicants with a history of bankruptcy. However, the RefiGuide can connect you with multiple lenders that offer HELOCs and home equity loans to people who had their bankruptcy discharged.
How Chapter 13 Bankruptcy Affects HELOC Eligibility
Chapter 13 bankruptcy is a structured repayment plan designed to help individuals reorganize their debts over a period of three to five years.
Once successfully completed, a discharge eliminates remaining eligible debts.
However, bankruptcy remains on a credit report for up to seven years, affecting the ability to secure new credit, including a HELOC.
Lenders view a recent bankruptcy as a red flag, signaling financial instability and higher risk. Nonetheless, obtaining a HELOC after a Chapter 13 discharge is possible under specific conditions, such as demonstrating improved financial health, re-establishing credit, and meeting lender requirements.
Challenges of Getting a HELOC After Chapter 13 Bankruptcy Discharge
While not impossible, securing a HELOC post-bankruptcy presents several hurdles. Understanding these challenges can help homeowners prepare effectively.
1. Credit Score Impact
Bankruptcy significantly lowers credit scores, and a Chapter 13 discharge does not automatically restore prior credit levels. Many lenders require a credit score of at least 620-680 for a HELOC, and individuals emerging from bankruptcy may need time to rebuild their scores. Learn more about HELOC credit requirements in 2025.
2. Lender Restrictions
Not all lenders offer HELOCs to individuals with a bankruptcy history. Some financial institutions may require a waiting period of at least two years post-discharge before considering an application, while others may impose stricter credit and income criteria.
3. Home Equity Requirements
Lenders typically require at least 15-20% equity in the home to approve a HELOC. Those who filed for Chapter 13 may have built equity over the repayment period, but insufficient equity can be a limiting factor.
4. Higher Interest Rates and Stricter Terms
Even if approved, borrowers emerging from bankruptcy often face higher interest rates and stricter loan terms. Lenders offset their perceived risk by increasing interest rates or limiting borrowing amounts, making the cost of borrowing more expensive.
How to Improve Your Chances of Getting a HELOC After Chapter 13 Discharge
While a Chapter 13 bankruptcy does not permanently disqualify you from obtaining a HELOC, strategic financial planning is essential. Getting a home equity loan with bad credit is challenging enough, but adding a bankruptcy to the equation may another layer with more equity required. Consider these steps to increase your approval chances:
1. Rebuild Your Credit Score
Lenders prioritize creditworthiness, so improving your credit score is crucial. Ways to rebuild credit include:
- Paying all bills on time to establish a positive payment history.
- Keeping credit card balances low and using credit responsibly.
- Avoiding new debt accumulation and unnecessary credit inquiries.
- Checking credit reports for errors and disputing inaccuracies.
2. Demonstrate Stable Income and Financial Responsibility
Lenders assess income stability and debt-to-income (DTI) ratios when evaluating HELOC applications. To strengthen your case:
- Maintain steady employment and demonstrate consistent income.
- Reduce existing debt to improve your DTI ratio.
- Provide documentation showing responsible financial management post-bankruptcy.
3. Increase Home Equity
The more equity you have in your home, the better your chances of getting a HELOC. Strategies to boost home equity include:
- Making additional mortgage payments to reduce principal faster.
- Completing home improvements that increase property value.
- Waiting for natural market appreciation to raise home value.
4. Seek Lenders Specializing in Post-Bankruptcy Loans
Not all lenders have the same policies regarding bankruptcy history. Some financial institutions specialize in lending to individuals recovering from bankruptcy. Consider researching credit unions, community banks, and alternative lenders that offer HELOCs to applicants with a Chapter 13 discharge.
5. Consider a Waiting Period
Time is an ally when rebuilding credit. Some lenders may require a waiting period of 12-24 months after a Chapter 13 discharge before approving a HELOC. Using this time to improve credit, build savings, and stabilize finances can increase the likelihood of approval.
Alternative Financing Options
If securing a HELOC immediately after a Chapter 13 discharge proves challenging, consider alternative financing options:
1. Personal Loans
Unsecured personal loans do not require home equity and may be easier to obtain than a HELOC, especially if your credit score has improved.
2. Cash-Out Refinances
A cash-out refinance replaces your existing mortgage with a new loan, allowing you to access home equity in a lump sum. However, this option involves closing costs and may come with a higher interest rate.
3. FHA Loans
The Federal Housing Administration (FHA) offers loan programs for individuals with a bankruptcy history. Some FHA-backed lenders provide home equity-related financing options with more lenient credit requirements.
4. Home Improvement Loans
If you need funds specifically for home renovations, some lenders offer home improvement loans that do not require substantial equity.
Final Thoughts on Getting a HELOC after a Bankruptcy
Obtaining a HELOC after a Chapter 13 discharge is possible but requires strategic financial planning, patience, and lender research. While bankruptcy presents obstacles, demonstrating financial responsibility, rebuilding credit, and increasing home equity can improve approval chances. Exploring alternative financing options may also provide a temporary solution until a home equity line of credit becomes viable.
The road to financial recovery may seem long, but perseverance pays off. As the saying goes, “A smooth sea never made a skilled sailor.” While Chapter 13 bankruptcy may feel like a storm, navigating it wisely can lead to a brighter financial future. With the right approach, homeowners can access the equity in their homes and regain financial flexibility after bankruptcy.
FAQs for HELOCs, Home Equity Loans and Bankruptcy
Can you file bankruptcy on a HELOC loan?
Yes, you can include a Home Equity Line of Credit in bankruptcy, but how it’s handled depends on the type of bankruptcy. In Chapter 7, the personal liability on the HELOC may be discharged, but the lender still holds a lien on your home and can foreclose if the loan isn’t paid. In Chapter 13, the debt may be restructured, and in some cases, a second mortgage can be stripped if the home’s value is too low.
Can a home equity loan be discharged in bankruptcy?
A home equity loan can be discharged in Chapter 7 bankruptcy, but only the personal obligation to repay it—not the lien on your home. This means the lender can still foreclose if the loan isn’t paid. In Chapter 13, you may be able to restructure payments, and in some cases, remove a second mortgage if the home’s value is less than the first mortgage balance. There are many unique rules and requirements to get a mortgage after a bankruptcy. We always suggest consulting an experienced bankruptcy attorney for specifics.
Can you get a home equity loan with bankruptcies?
Yes, but it depends on the type of bankruptcy and how much time has passed. Many lenders require at least two to four years after a Chapter 7 discharge, while Chapter 13 filers may qualify sooner if they’ve consistently made payments. Credit score, loan to value, and financial stability play crucial roles. Specialized home equity loan lenders and credit unions may offer more flexible options for those with past bankruptcies.
When can I apply for a home equity loan or credit line after bankruptcy?
The waiting period depends on the type of bankruptcy. After a Chapter 7 discharge, most lenders require a two- to four-year waiting period, though some may approve loans or HELOCs sooner with strong credit recovery. With Chapter 13, you may qualify immediately after discharge or even during the repayment plan with court approval. Rebuilding credit, maintaining steady income, and increasing home equity improve your chances of approval.
References
U.S. Courts. (2023). Bankruptcy basics: Chapter 13.
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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