Bankruptcy is a complicated and emotionally stressful process that allows the consumer to keep its most important properties and have a chance to a fresh start. The most negative aspect of bankruptcy is that it will affect a consumer's creditworthiness for a long time and getting a home loan can be difficult. During the process of bankruptcy, some consumers opt for keeping their house. However, due to financial stress, some consumers choose for selling or giving up their homes. In this case, even though it may seem almost impossible ever to own a home again, with a financial plan and good advice from an experienced mortgage specialist, buying a house after bankruptcy is possible.
How Bankruptcy Affects Home Owners
There are two main chapters in which consumers can file bankruptcy. Chapter 7 and chapter 13 see properties of values in different ways, and those assessments will affect consumers being able to keep their properties or not (The Bankruptcy Site, n.d.). In Chapter 13, the consumer can work out a payment plan and payments can be done between 3-5 years. On the other hand, in chapter 7, there is no need to repay a debt, but properties (houses) that are not lived in by the consumer must be surrendered because they are not exempt. The best aspect with chapter 7 is that consumers can keep the house they live in (Nolo, n.d.). Nevertheless, many consumers choose to give up their homes during a bankruptcy process voluntarily, and perhaps, it may be the best choice because it gives them the ability to recover and plan for the future financially.
Buying a House After Bankruptcy
Bankruptcy is not the end of the road, it is a chance for a fresh start and buying a house after bankruptcy is possible. Bankruptcy is a complicated process and can stay in the consumer's credit for ten years. Luckily, the longer times go by, the less it affects creditworthiness. Sometimes lenders will consider loans as early as two years after a bankruptcy discharge. Rebuilding credit is the path to buying a house, and some simple steps can speed up this process (Investopedia, n.d.):
- Getting a secured credit card, which it means having a deposit that backs up the repayment of the card, can help rebuild credit faster because its lender will start reporting a positive item to the credit bureaus.
- Installment loans, for example, a car loan, can also speed the process for consumers trying to rebuild their credit.
- Having a good rent history and utility bills payment history can also help positively, and many home lenders will consider these factors when deciding of the approval of a loan.
- Keeping a steady job is also essential. Self-employment can be a little more difficult as some lenders may request at least two years of tax returns that prove a steady income. However, it is also possible.
Bottom line, even though bankruptcy may seem like the end of the line, it is indeed the opposite. Buying a house after a bankruptcy discharge is possible with financial planning and goal settings. Times go by fast and consumers will find themselves decreasingly being affected by the bankruptcy. If you have been in bankruptcy and are planning to buy a house, let us sit together and start working on the plan for your future home. We are here to help you on your path to a new start.
References
The Bankruptcy Site. (n.d.). Will I Lose All My Property If I File for Bankruptcy? The Bankruptcy Site.
Jonelle Marte. (Jul. 16, 2016). What happens to your house when you file for bankruptcy? The Washington Post.
Cara O'Neil. (n.d.). Your Home in Chapter 7 Bankruptcy. Nolo.
Stephen Elias. (n.d.). Keep Your House with Chapter 13 Bankruptcy. Nolo.
Jean Folger. (Sept. 18, 2018). Buying a House After Bankruptcy? It Is Possible! Investopedia.