One of the primary fears people express prior to filing bankruptcy is that they won't be able to get a home or a car loan for years if not a decade after their debts are discharged.
Let's dispel that myth right now.
Riverside Chapter 7 Bankruptcy Lawyer Vincent Howard of HOWARD LAW wants to be clear on this: Your bankruptcy will be visible on your credit report for 7 to 10 years. However, you could be eligible for a mortgage or refinance on your home in as little as one year, assuming you work hard to improve your financial standing in the wake of your discharge.
Here's the reality: tens of thousands of people file for bankruptcy protection every single month in the U.S. They are not on hold from getting a loan for 10 years.
The American Bankruptcy Institute reports that there have been nearly 3 million bankruptcies filed in the last two years, with about 70 percent of those being Chapter 7.
In fact, those mortgages that are backed by the Federal Housing Administration are allowed just one year after a person finishes a Chapter 13 bankruptcy reorganization. Further, mortgages are permitted two years after a Chapter 7 bankruptcy liquidation.
More conventional mortgage guidelines from Freddi Mac and Fannie Mae mandate a wait of between two to four years.
The reason is because lenders are taking a look at the big picture. The fact that you have a bankruptcy is not a deal-breaker. Here are some of the other criteria that the mortgage lender will consider:
- How long you've been with your current employer;
- How many credit cards you have;
- What is your overall credit score and credit history;
- Do you generally pay your bills on time;
- Your assets and available cash;
- The cost of the property you wish to purchase in relation to these factors.
Essentially, it becomes critical after a bankruptcy is discharged to show that you can responsibly manage your money and the credit loaned to you. This is where it becomes key to create a budget, stick to that and pay your bills on time. The good news is that bankruptcy all but forces you to do this anyway.
The other thing you'll want to consider doing is getting a secured credit card as soon as possible after the discharge. If you can pay it off every month, this will help you begin to boost your credit score and start laying the foundation for a more positive credit history.
What you may also consider when you cross this bridge is the possibility of submitting a hardship letter. Many bankruptcies are the result of a one-time occurrence. If the sole wage-earner passes away or you endure a divorce or you've endured an illness or a job lay-off - these are neither permanent nor recurring instances. If you can explain this situation to the lender, along with documentation that backs your account (such as the divorce settlement paperwork or your hospital bills) the lender may be more likely to cut you a little slack.
Riverside Bankruptcy Attorney Vincent Howard at HOWARD LAW can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.
Mortgages: Life After Bankruptcy, Sept. 17, 2012, By Vickie Elmer, The New York Times
More Blog Entries:
Grappling With Medical Bills, Contemplating Chapter 7, Sept. 13, 2012, Riverside Chapter 7 Bankruptcy Lawyer Blog