Negotiating With The Trustee
Most Chapter 7 bankruptcy cases are what is called “no-asset” cases, which means everything the filer owns is protected through bankruptcy exemptions. Exemptions are specific to where cases are filed and vary by state law. Exempt property can’t be taken from the filer.
Nonexempt property is not protected through Chapter 7 bankruptcy and can be taken by the trustee and sold to pay back your unsecured debt. If a bankruptcy filer wants to keep otherwise nonexempt property, they can usually pay the trustee the value of the property. This is generally an option because the creditors will ultimately get the same amount whether the nonexempt asset is sold by the trustee or is bought by the filer.
Buying A House After Bankruptcy: How Long Will You Need To Wait
You can buy a house one to two years after filing for bankruptcy if you rebuild credit and avoid new debt.
Filing a Chapter 7 or Chapter 13 bankruptcy will show on your credit report and negatively affect your credit score, but that does not mean you can’t own a home while you work to improve your credit. Waiting seven to ten years until the bankruptcy is off your record is out of the question for many people.
In some cases, filing for bankruptcy can actually be the first step towards purchasing a house. If you choose to work with a bankruptcy attorney, they often know real estate agents and mortgage lenders who have worked with people who have a bankruptcy on their credit history.
Buying A House After Chapter 7 Bankruptcy Faq
How soon can I buy a house after Chapter 7 discharge?
Most home buyers have to wait at least 2 years after Chapter 7 discharge before they can get approved for a home loan. It may be possible to qualify sooner if you were forced into bankruptcy for reasons beyond your control, but early approval is rare.
What is the average credit score after Chapter 7?
The average credit score after a Chapter 7 bankruptcy is commonly in the low 400s to mid 500s, according to attorney Jeremiah Heck. To qualify for a home loan, you typically need a credit score of 580-620 or higher.
Can you buy a house after Chapter 7 with a co-signer?
Yes, having a co-signer can improve your chances of getting a mortgage post-bankruptcy. But remember that this can be a risky move for the co-signer. So you want to be sure you can make the monthly payments on time if you choose this option, recommends Graham. Also, you will still likely need to wait two to four years after a bankruptcy to apply for a mortgage loan, even with a co-signer.
Can I get a VA loan 1 year after Chapter 7?
Usually not. The minimum waiting period to obtain a VA loan after Chapter 7 bankruptcy is two years.
Can I get an FHA loan after Chapter 7?
Yes, provided you rebuild your credit and wait two years after your bankruptcy is approved by the courts. Avoiding new debt after your bankruptcy is discharged can also help your chances of qualifying for an FHA mortgage.
What credit score do I need for an FHA loan?
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Loans And Other Credit
After you have been discharged from bankruptcy, there is no legal waiting-time requirement that must be met in order to apply for most loans, such as personal loans or car loans. However, lenders will ask for your financial information, including whether you are employed, current debts and assets, in addition to obtaining credit reports which contain information about your credit history and bankruptcy. Therefore, before immediately applying for a loan after being discharged from bankruptcy, it is a good idea to spend some time on repairing your credit, which will increase your chances of getting a loan.
Respond To Lender Inquiries
Once you submit your preapproval application, the rest is in your lenders hands. Your lender will review your income, assets, debt and credit to see if you qualify for a mortgage. If you seem like a good candidate, your lender will send you a preapproval letter. You can use your letter to start shopping for a home.
Your lender might need to contact you to ask questions about items on your credit report. This is especially common after an adverse financial event like bankruptcy. Be honest and respond to your lenders inquiries quickly to improve your chances of approval.
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Buying A House After Your Bankruptcy Case Will Probably Come Easier And Quicker Than You Think
By Carron Nicks
Eliminating debt by filing a bankruptcy case can make it easier for you to afford a home purchase, but it will also impact your ability to get a loan. So don’t plan on qualifying for a loan the day after your bankruptcy dischargemost lenders won’t be willing to take a chance on you immediately.
Even so, there’s a good chance you’ll qualify for a mortgage loan sooner than you think. Learn how the following will impact your ability to buy a house:
- your post-bankruptcy credit score, and
- qualification requirements of government and private lenders.
How To Get A Mortgage After Bankruptcy
Getting a home loan after bankruptcy is possible, but it will require patience on your part. Youll also need to take steps to increase your chances of mortgage approval after bankruptcy.
A bankruptcy will lower your significantly which signals to creditors that you are a lending risk. And it will impact your score for years to come. A Chapter 7 bankruptcy remains on your credit report for up to 10 years, while a Chapter 13 remains for up to seven years.
While you dont need to wait for a bankruptcy to disappear from your credit report to get a mortgage, you must adhere to a waiting period before applying. How long youll have to wait depends on the type of bankruptcy you file, as well as the type of mortgage you plan to get. If extenuating circumstances are present such as a divorce, job loss, illness, death of a primary earner or other unforeseeable events you may qualify for a home loan sooner.
Heres a brief overview of how long youll need to wait to apply for a mortgage after Chapter 7 and Chapter 13 bankruptcy.
|No waiting period|
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Other Considerations Before You Refinance
Think that a refinance might be right for you? Here are a few things to think about before you apply.
- Bankruptcies hurt your credit score. No matter which type of loan you choose, youll need to meet minimum credit standards before you qualify to refinance. Bankruptcy puts a massive hit on your credit rating, so you may need to focus on raising it prior to your refinance. To avoid disappointment, know your credit score and your loans minimum credit requirements before you apply.
- Youll still need to pay closing costs. Chances are, you dont have much in savings post-bankruptcy. Keep in mind that youll still need to pay closing costs with most refinances. These costs can equal 2% 3% of your total loan value. You may be able to roll your closing costs into the principal of your loan if you have enough equity.
- Your old bankruptcy might still be on your credit report. Credit reporting bureaus must remove your bankruptcy from your credit report after 7 10 years, depending on which type you filed. However, credit reporting errors are common, and your old bankruptcy might still appear on your report. Make note of the date that your bankruptcy should no longer appear on your credit report, and make sure to follow up.
How Foreclosure Prolongs A Mortgage Waiting Period
Sometimes a bankruptcy isnt the only financial setback a potential mortgage borrower is dealing with. The bankruptcy may have been preceded by foreclosure on a mortgage.
Having both a foreclosure and bankruptcy may prolong the mortgage process more than just a bankruptcy, and may add other requirements.
The following chart shows the length of time after a foreclosure a potential borrower may apply for a loan:
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Getting A Mortgage After Bankruptcy: Waiting Periods
Understand itll take time to rebuild the trust needed for lenders to consider your application. In most cases, the soonest Rocket Mortgage® can help you refinance your house or get into a new one is 1 year after the discharge or dismissal of your bankruptcy.
The length of the waiting period depends on the type of bankruptcy you filed and the type of loan you want to get.
What Happens To Your Credit Score After Filing Bankruptcy
Chapter 7 bankruptcy and Chapter 13 bankruptcy filings show up on your credit report. How long it shows up depends on which type of bankruptcy you file. Chapter 7 bankruptcy stays on your credit report for 10 years after the filing date. A completed Chapter 13 bankruptcy stays on your credit report for 7 years after the filing date, or 10 years if the case was not completed to discharge.
As a result, filing bankruptcy will initially lower your credit score. How much your credit score will drop depends on how high or low it was before bankruptcy. Generally, a decrease between 100 to 200 points can be expected.
The good news is that you can begin rebuilding your credit as soon as your bankruptcy discharge is entered. It’s possible to have a better score within 1â2 years of filing. The credit scores of most bankruptcy filers are already lower because of missed payments. After the court grants a discharge, most unsecured debts are erased. Credit scores improve because there are no more missed payments and discharged accounts show a zero balance.
After Chapter 7 and Chapter 13 bankruptcy is filed, you will get credit card offers in the mail. These offers can be for secured credit cards, sometimes called prepaid cards, which require a cash deposit. Or, offers can be for unsecured credit cards, but will likely have high interest rates or annual fees.
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Buying A Car After Completing A Chapter 7 Is Definitely Possible And Not Uncommon
From the Upsolve Bankruptcy Community on Facebook!
The longer that you can wait to make a large purchase after receiving your discharge, the better off you will be. While a bankruptcy does stay on your credit report for 7-10 years, it also erases most of the other dings on your report and allows you tostart rebuilding almost right away.
Following the above suggestions can help ensure that you get the best deal possible. Remember that buying a used car and/or obtaining a car loan that you can afford without financial strain will help to build back up your positive credit after a bankruptcy and help maintain your financial health moving forward.
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What About Multiple Bankruptcies
The government-backed mortgages do not mention multiple bankruptcies in their guidelines. Conforming loan underwriting does consider them, however, if you file more than once during the most recent seven years. The guidelines read:
For a borrower with more than one bankruptcy filing within the past seven years, a five-year waiting period is required, measured from the most recent dismissal or discharge date.
But those with documented extenuating circumstances get a break. The extenuating circumstances must apply to the second bankruptcy. because it would be pretty hard to prove that the problem is unlikely to recur if it already has. Fannie Mae says:
A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the most recent bankruptcy discharge or dismissal date. The most recent bankruptcy filing must have been the result of extenuating circumstances.
Can Bankruptcy Get Rid Of My Mortgage Debt
Chapter 7 bankruptcy will likely eliminate your mortgage debt, but this means youll have to give up your home unless it qualifies for an exemption. Your lender still has the right to foreclose on the home to recover as much of the original mortgage amount as possible.
With Chapter 13 bankruptcy, youre able to retain assets like your home. Youll have a new plan in place to repay your debt. Just be sure youre making on-time payments, or youll put yourself at risk of foreclosure.
How Long After Bankruptcy Can You Buy A House
The waiting period to buy a house depends on whether you filed Chapter 7 or Chapter 13 bankruptcy, and the type of loan you seek. Waiting periods after Chapter 7 is discharged vary from two to four years. After Chapter 13 is discharged, some federal loans are available immediately, though a conventional loan requires a two-year waiting period.
The first step in qualifying for a home loan after bankruptcy is to have the bankruptcy judge discharge your case. Then comes the patience test, and the timeframe is determined by the type of bankruptcy you have and the type of loan you desire.
How To Apply For A Mortgage After Bankruptcy
The experts recommend working hard to bounce back from bankruptcy. That means improving and monitoring your credit before attempting to apply for a loan post-bankruptcy.
To apply for a mortgage after bankruptcy:
1. Check your three creditreports for free at AnnualCreditReport.com, disputing and resolving any errors you spot, and following credit-use best practices.
Make sure all debts that should be marked as included in your bankruptcy are reporting with zero balances on your credit reports, Morgan cautions.
Additionally, focus on making payments on time and as fully as possible. If youre struggling to rebuild your credit but are getting new credit applications declined, consider opening a secured credit card, which is generally easier to qualify for, Tayne says.
2. Avoid applying for and taking on too much new debt, and refrain from closing accounts, which can also lower your credit score because it can affect the length of your credit history and credit utilization.
3. If at all possible, look to save. Remember that the larger your down payment saved, the more favorable your interest rate will be.
4. Gather and organize all your bankruptcy discharge and schedule documents, recent pay stubs, two years of tax returns and other paperwork that lenders will want to see proof of.
Chapter 7 Versus Chapter 13 Bankruptcies
Mortgage lenders treat Chapter 7 bankruptcies differently than they do Chapter 13 bankruptcies. In most cases, Chapter 7 filers get harsher treatment than Chapter 13 filers. Thats because Chapter 13 filers repay some or all of what they owe over time, while Chapter 7 filers discharge their debts immediately.
But its possible to get a mortgage after bankruptcy regardless of the type of filing.
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Federal Housing Authority Loan
An FHA loan is a federally-insured loan. It’s attractive to first-time, cash-strapped home buyers because it offers the ability to put down as little as 3.5% of the purchase price.
Additionally, the requirements are more liberal than conventional loans. You’ll likely qualify with a credit score of:
- 640 and 3.5% down
- 580 if you can afford a higher interest rate, or
- 500 and 10% down.
If you’d like better terms, consider taking steps to improve a credit score of less than 640.
What Happens To Your Mortgage When You File Chapter 13
Chapter 13 Bankruptcy is more like a structured repayment plan than a wipeout of all debts, and thus a very different species from Chapter 7 Bankruptcy. With Chapter 13, you file a plan with the bankruptcy court detailing how you will repay your creditors. The bankruptcy trustee reviews the plan, ordering some debts to be paid in full, some to be paid in part, and possibly a handful to be forgiven.
Chapter 13 Bankruptcy does not affect your home mortgage, so you can file for bankruptcy and keep your house in Texas. You continue to make your mortgage payments during and after the bankruptcy, ie., there is no Chapter 13 discharge of mortgage debt in the traditional sense.
If you have fallen behind in mortgage payments, you have the option of paying mortgage late while in Chapter 13 and you can add the arrearage to the Chapter 13 repayment plan, which typically lasts from three to five years. Chapter 13 and mortgage payments thus have a different relationship than Chapter 7 and mortgage payments, which does not allow for the accumulation of arrears and allows for the discharge of mortgage debt.
Do You Have to Reaffirm a Mortgage in Chapter 13?
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Why It Can Be Challenging To Get A Mortgage After Bankruptcy
There are two main types of bankruptcy: Chapter 7 and Chapter 13. The former is the most common type, and it involves a liquidation, meaning most or all of your outstanding debt is discharged. A Chapter 7 bankruptcy is usually approved for those with limited income to repay what they owe.
A Chapter 13 is known as a reorganization bankruptcy. Here, you create a plan to repay your creditors, taken from your earnings, at a percentage of what you owe them up to 100 percent. This repayment plan takes longer than a Chapter 7, often three to five years, and it has to be approved by a bankruptcy court.
Both types of bankruptcy can negatively impact your ability to get a mortgage. Thats because a Chapter 7 or Chapter 13 stays on your credit report for 10 years or up to seven years, respectively, from the date of filing.
A mortgage lender can see that, at one point, you had trouble managing your debts, says Adem Selita, CEO of The Debt Relief Company in New York City. This can be interpreted as a red flag for loan officers, who may believe that history will repeat itself.
Youll also be required to wait a certain length of time following a bankruptcy before being eligible again for a mortgage loan. Even after that time has elapsed, it may be more difficult to obtain a mortgage loan than it would have been if you didnt declare bankruptcy, and you may pay a higher interest rate.