Filing For Bankruptcy

The real estate and credit meltdown of 2008 have affected millions of Americans throughout the United States.  Millions of hard working Americans have lost their jobs and businesses.  Others have lost their homes and had to settle for minimum wage jobs.  Bankruptcy and foreclosure rates have soared to historical highs.  Millions of Americans who lost their jobs or businesses were living off their credit cards and other credit where they eventually could not pay the debts they incurred.  Those who could afford to file bankruptcy did so while others did not have attorney fees to file bankruptcy and just dodged bill collectors.  Fortunately, many have recovered now but still have outstanding debts, charge offs, and collections and are contemplating filing bankruptcy to clear their old debts.  I run into situations like these all the time.  I am not a bankruptcy attorney and cannot offer legal advice but can offer my opinion.   For those who have had prior bad credit, charge offs, and collections from years ago, maybe filing bankruptcy might not be the best option for you.

Open Collections And Charge Offs

If you have an old collections account or charge off account, you can still qualify for a residential mortgage loan without having to pay those off.  The older the collection account is, the less likely the collection agency will go after you.  Charge off accounts are creditors who wrote you off and the chances are that they will not come after you.  You should also check with your state’s statute of limitation laws and see how long your debt collector has to collect an old debt before  the statute of limitations runs out.  Another thing that you need to consider is that derogatory credit items will fall off your credit report after 7 years from the last date you have made payment.  Bankruptcies stay on your credit report for a period of 7 years.  The older your derogatory credit item is, the less impact it has on your credit report.  If your debt collectors are leaving you alone, maybe you should wait out the statute of limitations and can possibly avoid bankruptcy.  You can start re-establishing new credit and improve your credit scores.  The easiest fix would be getting new secured credit cards to rebuild your credit.  Positive new credit will boost your credit scores and offset old negative credit.  There are many cases where people have had prior bad credit but re-established new positive credit and have credit scores of over 700 FICO.   I help many people who have had prior bad credit with open collections, charge offs, and prior late payments get FHA insured mortgage loans.  If you have open collections and charge offs, do not pay them because by paying them, it will reactivate the statute of limitations and drop your credit scores by 80 points or more.


There are cases where filing bankruptcy might be your only option.  If you have multiple judgments for large dollar amounts, maybe filing bankruptcy might be the best possible option.  Judgments are the worst type of derogatory item you can have.  Judgments are normally good for at least 10 years and a judgment creditor can renew a judgment for another 10 years depending on which state the judgment was filed.  Can you get a mortgage loan with a civil judgment on your record?  The answer is yes.  If you have a payment arrangement with the judgment creditor and can provide that you have been paying the judgment creditor for two months and provide the mortgage lender two months of cancelled checks, you are eligible for a mortgage loan.  Other mortgage lenders might have internal mortgage lender overlays that the judgment be paid off.  You can also settle with the judgment creditor for a percentage of what you owe.  You can also contest the judgment if you have not been properly served and ask the court to vacate your civil judgment.

Is Bankruptcy Best For Me?

All in all, you should do your proper due diligence prior to filing bankruptcy.  Get free consultation from bankruptcy attorneys, talk to mortgage lenders, and check the statute of limitations on your state.  Bankruptcy is a great tool and a great federal law that protects a consumer against creditors, however, make sure that bankruptcy is the best option for you.  If you have older collections and many years have passed and the collection agencies are leaving you alone, maybe bankruptcy might not be the best option for you.

Related> Mortgage After Chapter 13 Bankruptcy

Related> Mortgage Part Of Bankruptcy

Related> Qualifying For Mortgage After Bankruptcy And Foreclosure

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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