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How Filing Bankruptcy Affects Applying For Mortgage Versus Not Filing

How Filing Bankruptcy Affects Applying For Mortgage Versus Not Filing

This BLOG On How Filing Bankruptcy Affects Applying For Mortgage Versus Not Filing Was UPDATED On January 26th, 2019

Bankruptcy is a federal law that enables a person who are overwhelmed in debts seek relief from the courts. Consumers can either discharge all of their debts or structure a repayment plan to pay their creditors.

  • Bankruptcy gives those who are in debt and cannot meet their payment obligations a fresh start in life
  • Bankruptcy is not the end of the world
  • People that file bankruptcy can get qualified for home loans after meeting the waiting period requirements
  • A bankruptcy will plummet credit scores by 200 or more points initially
  • However, the good news is that the drop is a temporary drop and credit scores will recover over time
  • The longer bankruptcy discharge date is, the less of an impact the bankruptcy will have on credit scores
  • Immediately after the discharge date of bankruptcy people should start re-establishing credit by getting a few secured credit cards
  • Secured credit cards are the ultimate weapon and healer in rebuilding credit after filing bankruptcy
  • Getting five $500 credit secured credit cards is the easiest and fastest way of rebuilding credit
  • Use them wisely
  • Credit scores will surpass the 700 mark a year after getting secured credit cards
  • The question need to ask is whether to should file bankruptcy and why

How Filing Bankruptcy Affects Applying For Mortgage And How Long Do I Need To Wait?

Is bankruptcy for me?  Why are you considering bankruptcy?  What do you know about bankruptcy? How Filing Bankruptcy Affects Applying For Mortgage?

  • Bankruptcy attorneys give free consultations
  • I strongly advise on speaking not to just one bankruptcy attorney, but several
  • Do not rush into signing a contractual agreement with the first bankruptcy attorney 
  • Need to feel comfortable with the bankruptcy attorney 
  • Speak to family and friends who have gone through prior bankruptcies
  • Consult with credit counselor about the pros and cons in filing bankruptcy and 
  • Consult with loan officer to see How Filing Bankruptcy Affects Applying For Mortgage

Why Is Bankruptcy For Me?

I speak to dozens of borrowers a day. large A large portion of our prospects who are on the verge of filing bankruptcy do not need to file bankruptcy.

  • Perfect example is a potential home buyer who came to me to eventually qualify for a mortgage loan
  • She told me that she wanted to purchase a home but need to file bankruptcy
  • I told her that I will run her credit
  • When I got the results, I was surprised that her credit scores were over 700
  • I saw no reason in her filing bankruptcy
  • She did have a few collection accounts and several charge off
  • But most of her delinquent accounts were over 5 years old
  • The majority of her collections, charge offs, repossessions will not only expire the statute of limitations but will fall off her credit report in a year or two
  • I asked her why she wanted to file bankruptcy
  • She told me that she wanted to qualify for a home loan and could not pay back her older debts
  • The thing she did not realized is that most of the debt collectors had stopped calling her
  • Most of her debts are nearing or has passed the statute of limitations
  • Borrowers do not have to pay outstanding collections and charge off accounts to qualify for FHA Loans
  • A bankruptcy would have been not needed on this particular case

Do You Have To File Bankruptcy?

In the event if a debtor has a few debts and the debts are recent debts, the creditor will be more than willing to do a repayment plan which is affordable to the debtor and the debtor can avoid bankruptcy.

  • Debts that are older than 2 years old, the chances of the creditor going after the debtor is not likely
  • I have seen people file bankruptcy for having debts as little as $5,000

Bankruptcy Qualifications

There are two types of bankruptcies:

  • Chapter 7 Bankruptcy
    • Chapter 7 Bankruptcy is total liquidation and are geared towards folks with no income or little income
    • Chapter 13 Bankruptcy is only for those folks who have income and want to protect their assets
  • Chapter 13 Bankruptcy
    • Chapter 13 is also known as restructuring of debts
    • Abankruptcy trustee is appointed to the petitioner where a percentage of the petitioner’s income is allocated towards paying the creditors over a course of 3 to 5 years
    • After that period is over, the remaining debts are discharged

Lawsuits And Judgments: Wage Garnishments And Assets Seizure

Creditors can take consumers to court and get a judgment against them.

  • Creditors can enforce the judgment against and can also garnish wages and seize bank and investment accounts
  • Those who have pending lawsuits and judgments filing bankruptcy can discharge them
  • Judgments are the worst derogatory items anyone can have on credit report
  • Judgment is good for at least 10 years in most states
  • Judgments can be renewed for another 10 years for a total of 20 year depending on the state
  • Multiple judgments can affect mortgage process
  • If judgment creditor believes the debtor has assets and income, they will most likely aggressively pursue collection activities such as the following:
    • Garnishing wages
    • Freezing assets
  • I am not a bankruptcy attorney nor a bankruptcy expert so consumers need to contact a bankruptcy attorney to explore these options
  • By filing bankruptcy, all of judgments and lawsuits can get expunged
  • There are certain debts that cannot be discharged through bankruptcy as the following:
    • Government loans such as student loans
    • Government fines
    • Child support
    • Income taxes
    • Federal student loans

There are exempt assets when filing bankruptcy.  Petitioners can still keep home, car, and other assets and still file bankruptcy.

How Filing Bankruptcy Affects Applying For Mortgage And How To Qualify?

Borrowers do not have to file bankruptcy to qualify for home loans. Outstanding Collections and Charge Off accounts do not have to be paid to qualify for home loans. Written payment agreements and three months of payment seasoning is required for borrowers with outstanding judgments and tax liens.

Waiting Period After Bankruptcy To Qualify For Mortgage

Borrowers who filed bankruptcy, there are mandatory waiting period requirements they need to meet:

  • 2 year waiting period after discharged date of Chapter 7 Bankruptcy to qualify for the following loan programs:
    • FHA Loans
    • VA Home Loans
  • USDA Loans requires three years waiting period
  • Borrowers can qualify for FHA and VA Loans one year into a Chapter 13 Bankruptcy Repayment Plan
  • There is no waiting period after Chapter 13 Bankruptcy discharged date to qualify for VA and FHA Home Loans
  • There is a four year waiting period to qualify for Conventional Loans After Chapter 7 Bankruptcy
  • There is a two year waiting period to qualify for Conventional Loans After Chapter 13 Bankruptcy discharge date
  • The waiting period is four year to qualify for Conventional Loans After Chapter 13 dismissal date
  • There is one year waiting period to qualify for non-qm loans after Chapter 7 Bankruptcy

The Gustan Cho Team at Loan Cabin Inc. is a direct lender with no mortgage lender overlays on government and conventional loans. Please contact us at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

This BLOG On How Filing Bankruptcy Affects Applying For Mortgage Was Written And Published On January 26th 2019

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