Loan Denial / Bankruptcy

Posted By: LoisLane

Loan Denial / Bankruptcy - 11/09/01 07:51 PM

A lender said he was told that a loan cannot be denied solely because of a bankrupcy. I know that bankruptcy can't be used as a lone reason to deny employment, but I'm unaware of restrictions for the loan approval/denial process. Does anyone have any information on this subject?
Posted By: David Dickinson

Re: Loan Denial / Bankruptcy - 11/09/01 08:56 PM

Reg B does not state this but it could be state law. For instance, Iowa has a state law that says exactly what your lender said.
Posted By: Andy_Z

Re: Loan Denial / Bankruptcy - 11/11/01 08:56 AM

Generally delinquency and even repossessions accompany a bankruptcy. Those add to the reasons, if the deal looks bad.

Until I wrote a paper on this I had not realized that the right to file bankruptcy is in our US constitution.

Andy Zavoina
Opinions stated are not necessarily that of my employer.

Posted By: Lucy Griffin

Re: Loan Denial / Bankruptcy - 11/12/01 11:30 PM

Because bankruptcy gives the debtor certain protections, some (misguided) lawyers have argued that bankruptcy could not be a reason for denial under Regulation B. The FRB has consistently said that this position is wrong. Bankruptcy simply is not a prohibited basis for making a credit decision. It is relevant to the applicant's credit performance. So, unless state law provides special protections for bankrupts, it does not violate either ECOA or the Fair Housing Act to use that as a reason for denial.