One of the reasons people put off filing for bankruptcy longer than they should is because they are worried they won’t be able to get a loan or buy a home anytime in the next decade.
Our Louisville Chapter 7 bankruptcy attorneys want to dispel this myth once and for all. The fact is, you may actually be able to qualify for a home loan in as little as a year after you file. It is true you may get faster approval if you file a Chapter 13 over a Chapter 7, but even the latter should not keep you from your goal of owning a home within two to four years after your debts have been discharged.
The New York Times detailed this issue recently, as there were reportedly more than 1.3 million personal bankruptcies filed across the country last year. According to the American Bankruptcy Institute, that’s actually down compared to about 1.5 million at the height of the economic downturn.
In just the first quarter of this year, there were about 312,000 fillings. The vast majority – about 70 percent – of those are Chapter 7 liquidation bankruptcies.
It is true that bankruptcy is going to affect your credit. In some cases, it could drop by anywhere from 200 to 350 points (compared to a foreclosure hit, which will dock you anywhere from 80 to 170 points). Your FICO score could fall by anywhere from 130 to 240 points. But let’s face it: Most people facing bankruptcy have credit scores already hit hard by late payments and maxed out credit cards. Filing bankruptcy can be the best way to expedite the rehabilitation of your credit profile and jump start your new life.
Yes, the bankruptcy will remain on your credit report for 7 to 10 years, but the truth is, there are many other factors that lenders consider when determining whether to grant you a loan. The key is improving your credit score.
Improving Credit Score After a Kentucky Bankruptcy
First of all, when the bankruptcy is finished, you have a clean slate. So from there, you start by faithfully paying all of your bills on time. All of them. While it’s true that some won’t be reported to the credit bureaus, most won’t hesitate to hit you with a late fee or a black mark on your credit report.
Secondly, start by getting more credit. We know this sounds like an awful idea, considering what you’ve just been through. But the key is to use it responsibly, in order to prove to lenders that you can manage it responsibly and are low-risk.
The other option you have, and this is particularly for those individuals whose bankruptcy was the result of a one-time event (think a death, divorce, a lay-off, an illness, etc.), is to apply for the mortgage waiting period to be reduced. In order to to this, you have to produce a hardship letter that spells out what happened. You will also need to back it up with documentation, such as the court documents in the divorce settlement or the hospital bills.
Lastly, if you have filed for a Chapter 13 bankruptcy and have paid back somewhere between 85 and 95 percent of your debts, most banks will view this favorably. (If you’re applying for a hardship waiver after a Chapter 13 filing, be sure to mention if you’ve paid back a large portion of your debts).
The bottom line is that a bankruptcy isn’t the end of your financial story – it’s a new beginning.
If you have questions about how a bankruptcy is going to affect your chances at getting a loan, we can help you find answers.
If you need to speak to a Kentucky bankruptcy attorney or Louisville foreclosure defense firm, contact the Schwartz Bankruptcy Law Center at 866-270-4495 for a free and confidential consultation to discuss your rights.
Mortgages: Life After Bankruptcy, Sept. 17, 2012, By Vickie Elmer, The New York Times
More Blog Entries:
New Federal Rules Aim to Curb Kentucky Foreclosures, Aug. 29, 2012, Kentucky Bankruptcy Lawyer Blog