Getting A Mortgage After Bankruptcy
You may not be able to get a mortgage during bankruptcy, but you can get one after bankruptcy if you otherwise qualify. Nonconforming loans like those from government agencies may not even have a waiting period.
The following sections will go over what you need to know if youre trying to buy a new house or refinance your current home after a bankruptcy.
Before we get into specifics around guidelines, its also worth noting in general that a bankruptcy of any kind has a major negative impact on your credit. Its not impossible to move forward and get a mortgage down the line, but you may have some recovery to do. A secured credit card or credit builder loan can help. Check out this post on buying a house with bad credit.
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.
What Cannot Be Discharged Under Chapter 7 Bankruptcy
Many times, because of court-ordered payment plans and consequences to credit scores, what happens after Chapter 7 bankruptcy depends on what debt is discharged in the bankruptcy.
The main reason behind bankruptcy is to give the debtor a fresh start. Accordingly, most unsecured debt, like credit card debt, CAN be discharged in bankruptcy.
EXCEPTIONS include:
- Debts for personal injury or death caused by debtor’s operation of a motor vehicle
- Fines and penalties for violating the law
- Certain tax-advantaged retirement plans
- Cooperative housing fees
Furthermore, there are certain debts that CANNOT be discharged under Chapter 7 but MAY be discharged under Chapter 13:
- Debts for willful and malicious injury to property
- Non-dischargeable tax obligations
- Property settlements in divorce or separation proceedings
There are certain exceptions to these rules, however.
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What Happens When I File Bankruptcy
Filing for bankruptcy after youve defaulted can protect your assets from being seized by the lender or creditor.
In a Chapter 7 bankruptcy, the court will decide which of your assets to sell in order to repay your creditors. Any remaining debt will be discharged, except for student loans, child support, taxes and alimony. This type of bankruptcy will stay on your credit report for 10 years.
If you file for Chapter 13, you may be able to keep more of your assets while discharging some of your debts. The debt that is not discharged will be put on a three- to five-year repayment plan. This will stay on your credit report for seven years.
Your credit score will likely go down significantly if you file for bankruptcy by at least 130 points, but sometimes by as much as 200 points or more. If you work in an industry where employers check your credit as part of the hiring process, it may be more difficult to get a new job or be promoted after a bankruptcy.
Jay Fleischman of Money Wise Law says that if you have credit cards, they will almost always be closed as soon as you file for bankruptcy. Getting another loan or credit card will also be very difficult in the early stages after bankruptcy. But as time goes on, the bankruptcy will affect your score less and less if youre responsible with your credit.
Get Rid Of Unsecured Debt
When you cant pay off your debts, its time to consider options. Declaring bankruptcy is just one solution to clear your debt problems.
Its time to deal with the stress of overwhelming debts. Contact us today for a free debt assessment with a Licensed Insolvency Trustee to review the types of debt you are dealing with, your budget, and let us help you develop a debt elimination plan.
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Fill Out And File The Forms
This part is tedious and leads to the majority of bankruptcy filing mistakes. While you can fill out the forms yourself, the answers you give can have an impact on other parts of the form and wrong answers can eliminate legal protections. All the forms are online and all you need do is print them out, fill out the required information, and mail them to the court. Find your local court by searching the U.S. Federal Court Finder. But the best advice is to never complete the bankruptcy process yourself. Hire a bankruptcy attorney that is a legal expert in what the rules are, how to best complete the forms, understands the local procedures and process, and is your legal representative.
Once you file, you are granted an automatic stay from further legal action and collection efforts. This means that once you have informed your creditors and collectors, they can no longer call you about the accounts included in your bankruptcy filing. It also stops all collection suits and foreclosures.
An Increase In Income During Chapter 13
Chapter 13 bankruptcy is appropriate when you have a steady income and can afford to pay off your necessary expenses, yet you do not make enough to keep up with your debt. You can use Chapter 13 to retain some of your assets, but discharge all or a lot of your debts. The court will give you three to five years to pay your debts on a set schedule rather than the original rate determined.
The amount you are required to pay towards your debts is based on your income minus your necessary expenses, such as rent or a mortgage payment, utilities, transportation, food, and medical care. Essentially, you will pay all of your disposable income toward your liabilities. When you get a raise at work or a new, better paying job, this may need to be disclosed to the court. It can depend on the language of your bankruptcy plans. You should speak with a Cleveland bankruptcy attorney to determine whether you must or should tell the bankruptcy trustee about your higher income.
A greater income may require that you make higher payments toward your debt. This is usually true if it is a significant increase in income, such as if you obtained a new job after completing an educational program or if you started working a second job.
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I Received Notice That A Discharge Was Entered What Does This Mean
In a Chapter 7 case, this means that the debts included and covered by the bankruptcy case are discharged and can no longer be collected. As set forth above, if your debt was secured by a lien on real or personal property, the lien may survive the bankruptcy allowing you to exercise remedies against such property / collateral only, but the underlying debt / obligation will be discharged.
In a chapter 13 case, the discharge is typically entered after the debtor has fully performed under and completed all required payments to creditors under the confirmed Chapter 13 Plan, which is typically a 5 year Plan in Arizona. Most debts covered by and paid through the Chapter 13 Plan will be discharged at this point, and no collection may be had on any balances which may remain unpaid on such debts.
About the author: is a partner at the Phoenix law firm of Jaburg Wilk. Her practice is concentrated on creditor’s rights, foreclosure and bankruptcy.
What Will Happen After Filing For Bankruptcy
Your case will predictably continue after you file for bankruptcy. For instance, you can expect to do the following:
- turn over financial documents to the bankruptcy trustee
- appear at the 341 meeting of creditors that all filers attend
- take the debtors education course and file the certificate, and
- wait to receive the bankruptcy discharge.
Once complete, most people feel a great sense of relief. If everything goes correctly , youll get a dischargea court order stating that you no longer have to pay qualifying debts that get wiped out in bankruptcy. Lenders wont be able to pursue you on the discharged debt.
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Alternatives To Chapter 7
Debtors should be aware that there are several alternatives to chapter 7 relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.
In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to “catch up” past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. §;707.
Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.
Things To Consider Surrendering Of Secured Assets
When you claim bankruptcy, you must surrender your assets, such as your home or your vehicle. This might not make sense if youve built up a fair amount of equity. For example, if you have $200,000 of net worth in your home, it doesnt make sense to give it up. Instead of filing for bankruptcy, youre likely better off with a consumer proposal, which allows you to hold on to your assets.
An exception to this would be if you did not have sufficient equity in your home or your car. There is an allowable amount of equity by which you can maintain these assets, but it varies slightly in each province. For example, if you are the sole owner of a home in Manitoba, you are only permitted to hold onto $2500 of equity in the property. If you own a car in Alberta, the maximum value, or equity, is $5000.
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Student Loan Hardship Options
If youre struggling with student loan debt, know that bankruptcy wont discharge that debt. However, there are options to make your payments more manageable.
Borrowers with federal student loans can choose to pursue deferment or forbearance for up to three years total. Depending on the type of student loans you have and the type of relief you choose, interest may still accrue during this time. Through Sept. 30, 2021, all federally owned student loans are automatically under forbearance with no interest accrual.
Another option for federal borrowers is to switch to an income-driven repayment plan with a loan forgiveness option.; This will extend your repayment timeline, but because the plan bases your student loan payments on your actual income, your monthly payment may be as low as $0.
If you have private student loans, you may still be eligible for deferment or forbearance options. This depends on the lender; if youre facing financial hardship, call your lender and ask about your options.
How Are Exemptions Determined In A Chapter 7 Bankruptcy
Since your house has to be considered exempt from the bankruptcy in order to have the most favorable scenario for keeping your house, its important to know how exemptions are determined. How your home is handled in a bankruptcy is determined by state or federal homestead exemptions. While specifics will vary by state, heres how the exemption works.
Theres usually a certain period you must have lived in the house before it can be considered for an exemption. For example, if you file under the federal statute, you must have owned the home for 40 months.
The second key determinant for an exemption is the amount of equity you have in the home, which requires knowing your home value. State and federal statutes let you exempt a certain amount of equity from being used by a trustee to pay off creditors and lenders. The exact amount that you can protect will vary from state to state.
Be sure to check the law in your state. Certain states allow you to double the amount of equity exempted if you file for bankruptcy jointly as a married couple.
The important thing to remember is that if you have enough equity that you fall above the exemption amount, your bankruptcy trustee may choose to sell your home to pay back creditors. Theyll pay you back for any exempted equity following the sale, but youll have to find a new home.
There are instances in which you may have options in deciding which exemption rules apply, so speak with your bankruptcy attorney.;
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How Long Do I Have To Wait After Chapter 7 To Get A New Mortgage
Most reputable lenders, including Rocket Mortgage®, will not consider you for financing until 2 years after the Chapter 7 bankruptcy has been discharged. If you find a lender who will consider you prior to 2 years, make sure you are fully aware of all the terms and conditions included in your mortgage. Scrutinize the details and look at all the costs to ensure youre not being scammed.
Its important to note that your options for a mortgage will be limited after a Chapter 7 bankruptcy. FHA and VA loans require a 2-year waiting period prior to application after the bankruptcy has been discharged or dismissed. If youre getting conventional or jumbo loan, you have to wait 7 years after discharge or dismissal before applying.
Filing For Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy , debtors agree that the bankruptcy trustee who oversees the case to sell their nonexempt property and pay the money to creditors. This doesnt mean you lose everything. Most people can keep most or all belongings in Chapter 7 bankruptcy. In those cases, creditors get paid nothing.
In exchange for agreeing to let go of property, the debtor gets a dischargea court order stating that qualifying debts get wiped out in bankruptcy.
Some people already have bankruptcy fees saved up. Others borrow from a friend or family member.
In a Chapter 7 case, individuals are usually required to pay attorneys fees, court filing fees, and educational costs in full before filing. The cost to file for Chapter 7 bankruptcy is less than that of Chapter 13 bankruptcy because cases are substantially shorter and less complicated.
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Does The Government Pay For Bankruptcies
Many people who find themselves in crippling debt seek bankruptcy protection for much needed financial relief. Filing Chapter 7 bankruptcy provides you with a fresh start so you can get back on track after having fallen into too much debt. But even though you may have more debt than you can handle, unfortunately, bankruptcy doesnât come free. And while youâre seeking financial freedom through filing for bankruptcy, you may be wondering who exactly pays for bankruptcy? Does the government pay for it? Do taxpayers pay for it? Do you personally pay for it? And, importantly, how much is it?
Before we can answer who exactly pays for bankruptcy, we need to first understand the types of costs involved.
How To Pay Off After A Settlement Is Reached
After both parties agree on an amount, you should request for the agreement in writing, and in that same document, it should be written that once the amount is paid off, the creditor will file a Satisfaction of Judgment. This is a document signed by the creditor that the payment was received. Avoid paying any money unless the written document of final settlement is received from the creditor. Of course, you dont want to be chased and harassed by the creditor after some time again to pay the rest.
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What Happens To Joint Debts After Bankruptcy
A joint debt cannot be eliminated by a divorce or separation agreement. That means that, no matter what your divorce or separation agreement says, debts that were owed by both you and your spouse before the divorce, will still be considered joint debts after the divorce. If one spouse files bankruptcy, the creditors can, and will, pursue the ex-spouse for payment of a joint debt regardless of what you agreed to in the divorce.
To eliminate a joint debt, your lender must agree to remove one spouse from any debt they co-signed or guaranteed. This includes joint credit cards.
