How Long To Recover From Bankruptcy
That one is entirely up to you. Most people, once they file for bankruptcy, immediately begin to feel better. They are no longer dealing with phone calls from their creditors or struggling to balance monthly debt payments.
Having eliminated their current debt problems, most find they are able to build a stronger financial future. Unless you urgently need to purchase a home for the first time or buy a car, you may not even need to worry about qualifying for credit right away. Many find they are able to live without immediate credit and since they have a stronger cash flow than before bankruptcy, they are able to start saving for when they do.
Having said that, approximately 10% of all Canadians will declare bankruptcy at some point in their life. The critical period is the period you remain in bankruptcy and the first two or three years after you have completed the process. During this time access to credit will be restricted.; You can slowly start rebuilding your credit during your bankruptcy using a secured credit card. Once you have completed your bankruptcy you will start to rebuild your credit. As you , traditional credit will become available again.
What about the I heard you cant have a bank account for ten years even if you file for bankruptcy? Of course you can have a bank account if you file for bankruptcy. In fact, one of the last things you do just before you file is .
Begin Your Next Home Search Today
Are you ready to get back on your feet and make your home buying dreams come true? Beverly-Hanks Mortgage Services can help you determine if you are qualified for a home loan. Once youre sure, go ahead and begin looking! Our professional real estate agents can work with you, on your timeline, to help you find the best home for your needs and budget.
Monitor Your Credit Score
Bankruptcy will likely cause an initial drop in your score of 100 to 200 points or more, though this varies and the effects improve over time. Checking your credit score from month to month is a critical step in improving your score after bankruptcy. To do so, create an account with a free online service; several credit card companies also offer customers free score updates.
Once your accounts are discharged during the bankruptcy process, check your score to confirm that these changes were accurately reported.
To avoid further decreases, monitor your credit score for any red flags that may signal identity theft or other issues. This may include fraudulent loan applications made in your name, inaccurate account statuses or civil suits or judgments you werent involved in. While score increases may come slowly, checking your credit score regularly is also an effective way to stay motivated as you take steps to improve your credit habits.
Traditional Or Prime Insured Mortgage:
To qualify for a traditional mortgage, which may give you the best rate, you must meet the following requirements:
- have been discharged from bankruptcy for at least;two years and one day
- have at least;one year;of re-established credit showing on;two;credit items usually with a minimum combined credit amount of between $2,500-$3,000
- have a minimum down payment of 5% for the first $500,000 of your purchase, 10% for any amount over $500,000
- if your down payment is less then 20% down you must have mortgage insurance available through Canada Mortgage and Housing Corporation
- your minimum LTV is 95%
- your maximum TDS is 44%
Bankruptcy And Your Credit Report
The type of bankruptcy you choose to file will determine how long it is listed on your consumer credit report. Chapter 7 and Chapter 11 bankruptcies stay on your credit report for 10 years after you file. Chapter 13 bankruptcies remain on a credit report for seven years after the bankruptcy is completed, but Chapter 13 proceedings can take up to three to five years to finish.
In many cases, it is not your damaged credit score that makes it hard to obtain credit. Some lenders do not grant credit to anyone with a bankruptcy, regardless of their FICO score. If you are having difficulty obtaining credit following a bankruptcy, it may be a good idea to open up a secured credit card, which is a credit card that you back with a cash deposit.
Building a personal relationship with a lender can be one of the fastest ways to secure credit after filing for bankruptcy.
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Get A Secured Credit Card
Reducing your dependence on credit cards can be an important step toward rebuilding credit after bankruptcy. However, the strategic use of secured credit cards can also help you begin to repair your trustworthiness in the eyes of lenders.
Taking out a secured credit card requires making a refundable security deposit and then borrowing against it. While these cards tend to come with high interest rates, if they report to all three credit bureaus, theyre a great option to show responsible credit behavior until youre better qualified for a traditional card with more competitive terms.
Some secured cards even allow you to graduate to an unsecured card after consistent on-time payments. This is a benefit since you wont have to apply for a new, unsecured card when your credit improves,
Keep in mind, however, that applying for a secured card doesnt guarantee acceptance, so take time to research the providers requirements before applying. If possible, choose a provider that offers prequalification so you can see whether youre likely to qualify before agreeing to a hard credit check that can further damage your score.
Buying A House After Bankruptcy: Ways To Woo A Lender
To start the mortgage process, lenders require a detailed letter explaining;why you needed to file for;Chapter 7 or Chapter 13 in the first place. Ideally, the bankruptcy would have been caused by an extenuating circumstance beyond;your controlsuch as the death of an income-contributing spouse, the loss of employment, or a serious illness.
In other words: A lender likes to see that you were hit with hard times that;had a significant negative impact on your expenses or income, and made it impossible to meet your;financial obligations.
What;a lender;wont want to see is someone with a die-hard shopping habit or a lackadaisical attitude toward paying credit cards on time. If thats you, youll have to prove youve changed.
Whatever the reason you filed for bankruptcy, lenders will need to properly document your extenuating circumstances, so be prepared to provide proof detailing your life event.
Medical bills, a doctors note, a death certificate, or severance paperwork are all acceptable evidence that prove to lenders that you are a safe bet worthy of a home loan.
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Q2 Will The Trustee Immediately Sell My House
If you have significant nonexempt home equity you cant protect, the trustee will sell your property, following the usual real estate selling process. The trustee doesnt need to rush the sale because a quick sale would usually result in lesser value for your home, which is not going to benefit you.
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Discuss Your Bankruptcy Alternatives To Keeping Your Home
Worrying about your home and your family is natural. For most people its not the mortgage thats the problem; its the credit cards, lines of credit, payday loans and other bills.
At Hoyes Michalos, we can help. In many cases you can file bankruptcy and keep your home and keep your car if you claim bankruptcy.
For over half of the people we meet with a bankruptcy is NOT necessary; a consumer proposal is a better solution and even if you do file bankruptcy, we still offer alternatives.
The longer you wait, the greater the risk that you fall behind on your mortgage payments, and that will put your hard-earned assets at risk.
There are other factors to consider before deciding if a proposal is the correct option, so if you or someone you know is in a similar situation, we recommend you discuss your individual situation with a bankruptcy trustee. With;offices across Ontario, we can help you review your options.
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
Is A Conventional Loan Right For You
A conventional loan can come from three organizations called:
- Ginnie Mae: Government-owned loans such as FHA loans, VA loans, and USDA loans
- Fannie Mae or Freddie Mac: Private loans or government-insured loans
You cannot get a lender to approve Fannie Mae or Freddie Mac loans if:
- You filed Chapter 7 bankruptcy in the last four years
- You filed Chapter 13 bankruptcy and got a discharge within the last two years
- Your Chapter 13 bankruptcy was dismissed less than four years ago
Sometimes, the waiting period can be shortened for major life changes, called extenuating circumstances. Things like a divorce, losing your job, or illness or accidents that result in large medical debt are beyond your control. They can reduce your waiting period after these circumstances.
Some banks or private loan officers can choose to underwrite a loan with less strict rules and waiting times, or more strict rules. That always depends on the bank’s practices.
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Check Your Credit Reports
Wed recommend the first thing to do, is to check your credit score. This is important because your credit reports may show irregularities with your financial profile.
Weve often seen vital information that has been incorrectly documented in a clients credit report, such as the date of bankruptcy discharge being inaccurate.
Having incorrect discharge dates on your credit file can make mortgage approval increasingly difficult. Irregularities such as these can occur due to basic admin errors from creditors, which is more common than you may think.
It may seem like a simple check, but it is crucial, as this could result in you being declined for a mortgage after bankruptcy. You may also find other credit issues on your credit file that you werent even aware of.
This is why its advised to check your credit report before you apply, so you can rectify any issues. You can use websites such as Check My File to download your credit reports in one place.
How Long Will A Bankruptcy Impact Your Credit Score
While filing for bankruptcy can help you clear many outstanding financial burdens, it can also wipe out much of your credit score. Financial experts say a Chapter 13 bankruptcy will stay on your credit reports for seven years. In contrast, a Chapter 7 will stay on your reports for 10 years. However, it is very possible to begin rebuilding your credit score much sooner. If you have a strategy, stay vigilant, and stay on budget, you may be surprised as how quickly you can build your FICO score to the minimum lenders require for a mortgage.
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Which One Should I Choose
Chapter 7 is, by far, the more popular form because its cheaper, quicker and effective at relieving responsibility for debt if you qualify! And thats a big if. You must pass a means test, meaning your disposable income is under the median income in your state. If you dont qualify for Chapter 7, you can always fall back on Chapter 13.
How Does Bankruptcy Affect Your Spouse
Assuming you file for bankruptcy without your spouse, after review by the trustee, and after either liquidation of non-exempt assets or partial repayment over three to five years , your debts are discharged. This means that bankruptcy eliminates your personal liability for debts as an individual.
However, your individual bankruptcy doesnt wipe out your spouses obligation to pay back his or her own debts or any joint debts you have together, which creditors may pursue against your spouse for the full amount. This is a strong reason to consider a joint bankruptcy filing if the circumstances warrant doing so.
One exception worth noting in Texas, a community property state, is that regarding debts you owe jointly with your spouse, creditors can only go after your spouses separate property after your bankruptcy. Since almost all property your spouse acquires during the marriage, including income, is community property, your spouse essentially will receive the benefit of your discharge as well for your joint debts. This is commonly referred to as a phantom discharge.
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Work Toward Better Debt
To have the best chance of getting a mortgage, youll want a history of different types of debt. After a few months of making payments on your secured credit card, you should apply for an unsecured card so you can show responsibility across multiple credit lines.
Both are a type of revolving debt. Next, you can apply for an installment loan, like a car loan. The key is to buy only what you can afford and pay it off at the end of every month.;
Organize Your Financial Documentation
Because you went through a bankruptcy, you know what its like to compile monthsor even yearsof pay stubs, account statements, tax returns, lists of assets, and other financial documentation. While buying a house after bankruptcy isnt as rigorous as going through the legal process of reorganizing your debts, many of the same records are required for mortgage applications.
If you know you want to buy a home, you should start keeping meticulous financial records right now. Having organized financial records shows that you are sensitive to the details. If you have a finger on the pulse of your finances, youll know what your budget is, what your net worth is, and when you are creditworthy for a home.
Unfortunately, even in an electronic world, paper is still king when it comes to mortgage approval. You should keep both electronic and paper records. Have a copy of your bankruptcy petition ready, and add it to your credit report and bankruptcy discharge documentation.
An easy way to get your financial documents organized is to split them into different categories.
- Bank, credit card, and loan statements
- Investmentssuch as savings bonds, retirement accounts, and stocks
- Tax records
- Legal documentslike your bankruptcy petition and marriage or divorce records
- Employment recordsincluding pay stubs
- Medical billsespecially if youve had large medical expenses
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What Lenders Will Approve A Loan During Chapter 13
VA, USDA, and, sometimes, FHA loans are available duringChapter 13 bankruptcy. Most major lenders are authorized to do FHA and VAloans. USDA mortgages are a little harder to find.
Remember that mortgage lenders can set their own lendingrules. Some may be more amenable to borrowers with Chapter 13 than others.
In addition, youll have better luck if youre notborderline meaning youre firmly eligible for the type of loan you want.
If youre right on the edge of qualifying forinstance, if your score is exactly 580, you have lower income, and you want anFHA loan it could be tougher to get approved.
Youll need to shop around and compare your options.
All mortgage borrowers should shop for their bestinterest rate. But for borrowers with Chapter 13 this is doubly important.
Youre not just shopping for a good deal; youre shopping for a lender thats willing to approve you.
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Write A Letter Of Explanation
Your lender takes a careful look at your finances when you apply for a mortgage. Every time a lender issues a mortgage, they take a risk. Lenders need to know that youll make your payments on time every month. Of course, a bankruptcy on your record is a major red flag.
You can increase your chances of getting a mortgage after bankruptcy by writing a letter of explanation. A letter of explanation tells your lender more details about your bankruptcy and why you needed to declare bankruptcy.
You might want to include details on the circumstances that led to your filing and how your financial life has changed since then. Also, explain the steps youve taken to prevent a future bankruptcy as well like paying off debt and building an emergency fund.
A letter of explanation isnt a requirement to get a mortgage after bankruptcy, but it can help your lender see the bigger picture instead of just a set of numbers. Include your letter of explanation with your mortgage application when you request a preapproval.
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Your House In Chapter 7 Bankruptcy
If you file for Chapter 7 bankruptcythe kind that gets rid of debt most quicklyyou can keep your house under two conditions: Youre current with your mortgage payments when you file , and the laws in your state allow you to protect all of the equity you have in the property. By giving you relief from other kinds of debts, like credit card or medical bills, bankruptcy can free up money to help you keep up with your mortgage. Most of our readers had this experience: 68% of those who went through Chapter 7 bankruptcy were able to keep their home.
If youve already fallen behind on your mortgage payments when you file for Chapter 7 bankruptcy, youre likely to lose your house. Filing for bankruptcy lets you stay in your home another month or two, but ultimately, the bank will foreclose on the property. But if the foreclosure sale price is less than what you owe on the mortgage, your remaining mortgage debt can be discharged in bankruptcy. Our readers who lost their houses reported an average discharge of $130,000 in mortgage debt after filing Chapter 7.