Letter of Explanation to a Lender for Filing Bankruptcy

Bankruptcy can be a mental relief for some people. For others, it can be an emotional, gut-wrenching experience. Bankrupt borrowers may feel remorse because they gave a promise that they would pay their bills, and lenders made loans to them in good faith based on this promise. Consumers going through bankruptcy may want to write a letter to a lender for many reasons.


Consider also​: Can I Lease a Car After Bankruptcy?

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Giving an Apology

In the truest sense of wanting to do the right thing, a borrower may want to apologize for not paying a lender back, even though it is completely legal to do this under the bankruptcy laws of the United States. In this case, he may write a letter to a bank or lender that he included in bankruptcy to communicate his regrets.


It is not essential to include an apology in your bankruptcy explanation letter. However, taking the time to write a letter like this may make the borrower feel better about himself, and help him move on towards his financial future.

Offer to Repay

A bankrupt debtor may want to repay certain creditors that he included in bankruptcy. A bankruptcy action requires a debtor to include all of his creditors in the bankruptcy, and these creditors have a priority order for payment set out in law. However, a creditor that the debtor knows personally, or someone who provides services on more of a personal level, like a doctor who has cared for him, may be someone that the debtor wants to repay before anyone else.


A bankrupt debtor can offer to repay his debt, and can carry out this offer without any consequences. The creditor cannot take an offer to pay like this as a binding obligation; any repayment is still strictly voluntary.

Establish New Credit

Many debtors who have been in bankruptcy want to rebuild their credit and look for ways to do this. A lender may want to know the circumstances surrounding the debtor's bankruptcy before it chooses to make a loan to a person. A borrower who is honest concerning the circumstances of the bankruptcy, and who explains it without making excuses, stands the best chance of being allowed to borrow money again.


If you're trying to pre-qualify for a home mortgage loan, for example, then the underwriter may insist on a letter explaining the bankruptcy, just as they would with any derogatory information appearing on your credit report. Smart borrowers include examples of how they have changed their lives in their explanation of bankruptcy so as to not make the same mistake again.


Consider also​: Mortgages & Taxes: What You Need to Know

Letters for Other Purposes

Potential employers often pull a credit report to help evaluate new job applicants. Although federal law prohibits an employer from discriminating due to a past bankruptcy, it may still cloud a company's opinion of the applicant as a person. Employers could be concerned about distractions due to financial problems, or potential theft.


An applicant can express in a letter that his financial problems are behind them, and that unlike a person who presently has past-due obligations, he has moved beyond his past problems.