How to Write a Bankruptcy Explanation Letter (with Sample) Use this sample bankruptcy explanation letter as a template for your successful bankruptcy explanation letter. Last updated on April 2, 2019
A consumer who has gone through bankruptcy may want to write a bankruptcy explanation letter to a previous creditor or a new creditor. He or she may want to reduce their waiting time for a Federal Housing Administration (FHA) loan from five years after filing bankruptcy to two years, or they may want to explain to a lender why they are suitable for approval for a loan. Some people write a bankruptcy explanation letter to apologize to the creditors who lost money because the consumer declared bankruptcy.
Even people who file bankruptcy need credit. Sending an explanation letter to potential creditors may make the difference between getting a loan or for credit approval. The consumer has a better chance of getting credit if they have a steady income and have made regular payments for at least six months. Here are some tips for writing a bankruptcy explanation letter: • Why the consumer filed for bankruptcy. This informs the potential creditor that the reason was unavoidable and not because of carelessness. It will also help the creditor see that the cause of the bankruptcy will not occur again. The consumer can talk to a credit counselor to understand how they got in debt and work out a plan so it will not happen again.
• The information in the letter should be honest and straightforward. It will not help the consumer to lie about his or her financial situation or to hide the reasons. Along with the truth, the consumer can give a plan on how they will make payments on the new loan. • Before sending the letter, the consumer should make sure their credit report is accurate. They can contact the credit bureaus for a copy of their report and examine it for any incorrect information or debt. If there is inaccurate information, they should first write a letter to the credit agency to ask that the information be changed Mention Any Discrepancies
If the agency refuses to do this, the consumer can request that a note be added to the report stating that the debt is in dispute. The consumer can also mention any discrepancies in their credit report when they fill out an application for credit. Some consumers want to tell their creditors why they had to file for bankruptcy to explain why they could not pay the bills they promised to pay when they got the loan or credit card. Some of the reasons for sending this type of letter are:
• To apologize for not paying the lender back, even though filing for bankruptcy is legal. While this may not satisfy the lender, it may make the borrower feel better.
• To offer to repay all or part of some loans. To file for bankruptcy, the consumer must list all of his or her debts, but after completing the process, they may want to repay a friend or caregiver who helped during a difficult period.
• To establish new credit by telling a potential lender why they had to file for bankruptcy and how they will not get into that situation again.
• To get a job. Some employers may wonder about the stability of a person who filed for bankruptcy. If the applicant sends an explanation letter, they may have a better chance of getting the job.
Bankruptcy Explanation Letter Sample Below is a sample bankruptcy explanation letter. It should be a formal business letter and sent by certified mail. If the consumer is filling out a loan application, they may want to include the letter with the application. This sample is for a car loan, so the person will have transportation for his or her new job.
Bankruptcy Explanation Letter for Car Loan Sample Name of Consumer Address of Consumer City, State, Zip Code
Name of Lender Address of lender City, State, Zip Code
RE: Explanation for why I filed for bankruptcy.
Dear Name of Lender:
The purpose of this letter is to inform you the reason why I filed for [Chapter 13 bankruptcy] in [YEAR]. I was in a car accident at that time and although I received payment from my insurance company for my medical bills, I was not able to make my mortgage payments.
I also used my credit card more than I should to buy food. My debt counselor suggested I file for bankruptcy, as there seemed no other course of action since I could not work for at least six months.
I have a new job, as well as a financial plan and budget for daily expenses, but I need a car since my job requires traveling at least twice each week. I would appreciate if you would grant me a loan for a new car. I have enclosed my financial plan in writing that includes my budget and method for repaying the loan.
Thank you for your consideration of my loan application. I can be reached at [Phone Number] or at [Email Address] if you have any questions.
Sincerely, Signature of Consumer Printed Name of Consumer List of enclosures: medical report, accident report, financial plan