How Does Filing Bankruptcy Affect Buying A Home

October 13, 2021

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Discuss Your Options With A Detroit Bankruptcy Attorney

How Long After Bankruptcy Can I Buy a House?

We offer free consultations for people to explore their debt resolution options and ensure that they will be able to reach their long-term goals, such as home ownership. We will carefully review your current circumstances and consider your future financial goals before making an informed recommendation.

Call us today at 866-261-8282 to speak to an attorney over the phone or set up an in-office appointment at any of our six Michigan law offices in: Detroit, Ann Arbor, Warren, Southfield, Dearborn and Flint.

What Are Va Loans

The VA loan program, administered by the U.S. Department of Veterans Affairs, offers low-cost loans to veterans and active military personnel. Qualified borrowers arent required to make down payments, some of the closing costs are forgiven and borrowers dont have to pay mortgage insurance.

There are several requirements for those who have gone through a bankruptcy if they want to get a VA loan.

Protecting Your Home Equity In Chapter 7 Or Chapter 13 Bankruptcy

Start by determining whether you can protect all of your home equity in bankruptcy. You must complete this critical step in both Chapter 7 and Chapter 13 bankruptcy.

In both bankruptcy chapters, you protect an asset with a bankruptcy exemption. Each state has a list of exemptions, so the property type and amount of equity you can protect using state exemptions varies widely.

Only a few states let you keep all of your home equity when you file bankruptcy. Most states have a much lower “homestead exemption.” Here’s how the homestead exemption works in chapter 7 and 13.

How Bankruptcy Can Affect Your Ability To Get A Mortgage

Bankruptcy can significantly lower your credit scores, remain on your credit reports and affect your ability to obtain credit, including a mortgage loan, for up to 10 years. Fortunately, its impact lessens over time.

For a lender to even consider you for a mortgage after bankruptcy, your bankruptcy must be discharged. A bankruptcy discharge is a court order that eliminates your debts. In addition to making sure your bankruptcy has been discharged, a lender will look at your credit report to determine your creditworthiness.

It’s a good idea to check your credit report before you apply for a home loan to make sure it’s accurate. Look for mistakes such as incorrect or outdated information or accounts that were not included in your bankruptcy filing that are listed as part of it. Be sure to contact the credit agency as soon as possible and dispute any errors you find.

When you do begin to apply for a mortgage after bankruptcy, your lender will likely ask you a few questions about your bankruptcy. They may ask you when your case was discharged, what you’ve done to establish new credit, and how you’ve been keeping up with your bills. It’s a good idea to have the answers to these questions ready beforehand so that the application process runs smoothly.

Let’s dive deeper into how each type of bankruptcy can affect your ability to get approved for a mortgage.

Chapter 7 Vs Chapter 13

Buying a Home When Youve Declared Bankruptcy

A Chapter 7 bankruptcy indicates the debtor is seeking to liquidate their assets and wipe away all debt. The bankrupt emerges from the process with a fresh start and a badly damaged credit history. Some creditors can claim security interests.

For example, your auto loan is secured by your car, and your mortgage by your home, so those assets will be sold, and the proceeds paid to satisfy those debts. Unsecured creditors generally get very little of what they are owed.

In a Chapter 13 bankruptcy, debtors seek a reorganization of their debts and commit to strict repayment plans. Debtors must make payments to creditors, but they dont lose all their assets and they dont take as hard of a hit to their credit. Thats because creditors reward debtors who are committed to paying their debts.

Challenges With Discharging A Credit Card Debt

If you are in a severe financial crisis, bankruptcy may be your only option. Bankruptcy has the potential to offer debtors a new financial life, free from debt. However, bankruptcy can have both positive and negative financial ramifications. During both the course of your bankruptcy case and for years afterward, the effects of your bankruptcy filing will force you to make adjustments in your financial life.

Is An Fha Loan Right For You

The only government-guaranteed loan is an FHA loan from the Federal Housing Administration. An FHA mortgage can be risky because you lose your house in foreclosure if you cannot make the mortgage payments.

However, it can be less risky to you since the government will pay your mortgage lender if you cannot make the payments. It will not add to your debt, but you will have a foreclosure on your new credit report on top of the bankruptcy filing.

You can get an FHA loan when:

Two years have passed since you filed for Chapter 7 bankruptcy
You have made one year’s worth of on-time payments in your Chapter 13 repayment plan
The lender agrees to approve the loan
The bankruptcy court agrees you can take on more debt before you have good credit again

Tips On How To Build Your Credit After Bankruptcy If You Want To Buy A House

If you want to increase your chances of getting approved for a mortgage after a bankruptcy filing, you need to improve your credit score and overall financial situation. Remember that a bankruptcy will still serve as black mark against you when applying for a mortgage. However, if you can prove that you are already more responsible/capable in making your payments leading to your mortgage application, your chances of getting approved are higher.

Can I Keep My House If I File Chapter 13

Buying A Home And Bankruptcy

If you have sufficient income to keep up with your mortgage, you will not lose your house. Chapter 13 bankruptcy involves a 3 – 5 year repayment plan. Long-term secured debts, like home mortgages, remain in place. Just like after a Chapter 7 filing, youâll continue to make your regular monthly mortgage payments after filing. In other wordsâ¦

If youâre current with your mortgage payments â¡ï¸ everything will stay basically the same.

What To Know About Refinancing After Bankruptcy

Bankruptcy gets a bad rap, but its also a way for consumers who are overwhelmed by debt to receive federal protection while they work to pay off obligations. While filing for bankruptcy is a very serious decision and the move can stay on your credit report for years it might be a reasonable move for your financial future if youve exhausted every other option.

There are several types of bankruptcy, and each might affect a potential refinancing differently, depending on factors like the discharge date.

A discharge date is the time when a debtor who has filed for bankruptcy is no longer legally liable for or required to pay back certain types of debt.

For Chapter 7 bankruptcies, a bankruptcy court will issue a discharge order relatively early generally, 60 to 90 days after the date first set for creditors to meet. With a Chapter 7 bankruptcy, a debtors assets are liquidated, or sold, as a way to pay back creditors.

In Chapter 13 bankruptcies, a debtor who has a regular income is allowed to keep assets but also has to agree to a debt repayment plan, usually over three to five years. The debt is technically discharged only after its been paid off under the plan.

According to federal court data, bankruptcy filings have been declining in recent years. Still, during the 12-month period that ended on June 30, 2018, 22,245 businesses and 753,333 non-businesses filed for bankruptcy, for a total of 775,578 filings.

Home Equity In Chapter 13 Bankruptcy

Chapter 13 bankruptcy works differently. You won’t be forced to give up any property. Instead, you’ll pay for the nonexempt portion of the equity in your plan. Of course, if you have significant nonexempt equity, this could get expensive. You’ll have to demonstrate that you have enough income to pay all amounts required in your plan.

Example. You have $50,000 in equity in your house, but the maximum amount you can exempt is $30,000. You’ll have to structure your Chapter 13 payment plan so that your unsecured creditors will receive at least $20,000 over the life of the plan. That amount is in addition to any other debts your plan payment must cover, like mortgage arrearages and car payments.

Find out more about what happens to your home and mortgage in Chapter 13 bankruptcy.

But being able to protect or pay for your home equity isn’t enough. You’ll have other requirements you must meet, as well.

Recommended Reading: How Many Bankruptcies Has Donald Trump Filed

What If Im Behind On My Mortgage

If youâre behind on your mortgage payment and â¡ï¸

you donât want to keep the house: Chapter 7 provides a mechanism to surrender the house to the bank and discharge your obligation to pay the loan. This will protect you if your mortgage loan is a ârecourseâ loan where the bank could otherwise try to collect a deficiency judgment after the foreclosure.
you do want to keep the house: Chapter 7 is not ideal. It doesnât provide a mechanism to catch up on your mortgage payments. This means youâre still at the mercy of the bank and their willingness to modify your home loan to deal with your arrearage. If you can afford to make your full mortgage payments now, Chapter 13 bankruptcy may offer a solution.

Help If I File Bankruptcy What Happens To My House

There may come a time that you struggle with money, and when youre in over your head in debt, you need to consider your best options. One way to deal with unmanageable debt is to file bankruptcy. But wait! What about your house? If youre wondering, Can I keep my house if I file bankruptcy? The answer to that depends on the type of bankruptcy that you file: Chapter 7 or Chapter 13. Let us help you with this guide.

Buying A Home After Bankruptcy: A Step

Its no secret that buying a house is part of the American dream. Homeownership allows you to build equity, enjoy predictable monthly payments, and benefit from tax deductions. Plus, thanks to various loan programs available, you can get pre-approved for a mortgage even if you dont have a great credit score.

But what if you have a bankruptcy on your record? Can you really buy a home soon after your credit took such a major hit? Though every borrowers situation is different, you can eventually purchase a home after bankruptcy.

Continue reading as we answer some questions related to this topic.

Whats The Difference Between Chapter 7 And Chapter 13

If youre considering filing bankruptcy, you should understand the options that are out there. Chapters 7 and 13 bankruptcies are the most used alternatives for individuals.

Chapter 7 bankruptcy is also known as total bankruptcy. Its a wipeout of much of your outstanding debt. Also, it might force you to sell, or liquidate, some of your property in order to pay back some of the debt. Chapter 7 is also called straight or liquidation bankruptcy. Basically, this is the one that straight-up forgives your debts .

Chapter 13 bankruptcy is more like a repayment plan and less like a total wipeout. With Chapter 13, you file a plan with the bankruptcy court detailing how you will repay your creditors. Some debts will be paid in full, while others will be paid partially or not at all, depending on what you can afford. Chapter 7 = wipeout. Chapter 13 = plan.

Also Check: How Many Bankruptcies Has Donald Trump Filed

Is It Hard To Buy A House After Bankruptcy

Getting a loan will be very difficult for a few years immediately following a bankruptcy, says Reggie Graham, branch manager for Silverton Mortgage.

He notes that home buyers applying after bankruptcy can often expect bigger down payment requirements and higher interest rates.

Your focus should be on rebuilding your credit to prepare for applying for a mortgage loan when youre ready, says Graham.

Keep in mind that a bankruptcy filing stays on your credit reports for 10 years.

This doesnt hinder your ability to buy a home. But its realistic to acknowledge that a lender is going to consider that fact when reviewing your loan request, cautions Heck. My suggestion is to expect two to three years to rebuild your financial health following a bankruptcy.

Graham also suggests the wait time to buy a home may be shorter if you file a Chapter 13 bankruptcy instead.

Chapter 13 involves paying back an agreed-upon portion of your debt, which lenders look more kindly upon, he explains.

You May Need A Credit Score Of 500 Or Higher To Buy A House

How does bankruptcy affect a property title? | AFX

The waiting period and loan approval are essential factors, but some loan officers will not consider you until you rebuild your credit score. Credit scores typically range from 300 to 850.

For each type of loan, you need a credit score of the following:

FHA loan: 500+
VA loan: no minimum credit score
USDA loan: 640+
Fannie Mae or Freddie Mac: 620-640 is the lowest they will accept

If your bankruptcy was years ago, but no one will loan to you, you may have options. There could be misinformation on your record or an outdated credit score.

Talk to a bankruptcy attorney about the issues you face in the home buying process to learn about your options. A new home is attainable within one to two years after bankruptcy if you take the right steps and seek legal guidance during the bankruptcy journey.

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Financing A Car After Bankruptcy

You may have already received letters from car dealerships offering you credit to buy a car, and its true. You should be able to get a car loan.

Should you? Think it through.

On the plus side: If you make consistent, on-time payments. A loan is a step for you to re-establish your creditworthiness. If you dont have the cash needed to buy a car outright, financing may be your only option.

The flip side: Offering you credit doesnt mean offering you good credit. Expect high interest rates maybe really high rates. Shop around and see what dealers or lending institutions are going to charge you.

Conventional Loans Have Stricter Terms For After

Conventional loans are not government-insured, so interest rates and credit score requirements tend to be higher than those for a government-backed mortgage like an FHA loan. For example, you can get an FHA loan with a credit score of just 500 (assuming youre willing to put down a 10% down payment, or 580 if you only want to put down 3.5%. By contrast, conventional mortgages usually require a minimum score of 620.

According to Jeremy Schachter, branch manager at Fairway Independent Mortgage Corporation in Phoenix, Ariz., some lenders offer niche refinance loans that dont require a waiting period, but these are adjustable-rate mortgages that come with higher fees.

The majority of people fall in the FHA or VA loan buckets, he said. It doesnt make sense if youve been through a bankruptcy to go with a loan with higher rates and fees.

How Long After Bankruptcy Should You Wait Before Buying A House

Most people applying for a loan will need to wait two years after bankruptcy before lenders will consider their loan application. That said, it could be up to a four-year ban, depending on the individual and type of loan. This is because lenders have different seasoning requirements, which is a specified amount of time that needs to pass.

Fannie Mae, for example, has a minimum two-year ban on borrowers who have filed for bankruptcy, says David Reiss, professor of law and academic programs director at the Center for Urban Business Entrepreneurship at Brooklyn Law School.

The FHA loan, on the other hand, has a minimum one-year ban in place after a bankruptcy. These bans, or seasoning periods, are typically shorter with government-backed loans than with conventional loans.

The time is measured starting from the date of discharge or dismissal of the bankruptcy action. Generally, the more time between debt discharge and the loan application, the less risky a once-bankrupt borrower looks in the eyes of a mortgage lender.

Buying A House After Filing Bankruptcy In Ohio

If you are not able to get financed for a house do to your credit, you may want to explore your options with filing for bankruptcy. Many times the bank wont sign off on the mortgage loan if there are unpaid balances lingering on your credit report. The bank will often ask that all outstanding debts that are in collections or default be paid in full before they will consider financing a mortgage. The situation can look grim if you have lawsuits, repossessions, evictions, or bills in collections on your record that are not satisfied or paid in full. If you are not able to pay these outstanding debts then bankruptcy may be the only way to get your credit restored so that you can get financed. If you are struggling to make minimum payments on your bills or having a hard time getting financed, we invite you to contact us for a free bankruptcy consultation. We take a personal approach to solving your financial challenges and never hesitate to act quickly when time is of the essence. Help is just one phone call away! 614-934-1544

How Can Filing Bankruptcy in Ohio Help Me Purchase a House?

How Does Filing Bankruptcy in Ohio Affect My Credit?

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