For many, the thought of filing for bankruptcy is daunting and often accompanied by the fear of never owning a home. However, the reality may surprise you. Many ask, “If I am filing for bankruptcy, can I buy a house again?” The simple answer is yes — filing for bankruptcy impacts your credit, but it does not permanently shut the door on homeownership. In this post, we will explain what you need to know about buying a home post-bankruptcy.
Understanding Filing for Bankruptcy and Its Impact
Filing for bankruptcy can feel like the end of financial stability, but it is also a new beginning. When you file, whether Chapter 7 or Chapter 13, there will indeed be an impact on your credit. But for most, things are not as dire as they appear. Many filers already have credit reports plagued by late payments, negative remarks, or judgments. Rather than further damaging their credit, bankruptcy can clear away these markers by resolving debts.
Why Your Credit Score Might Improve
After a bankruptcy discharge, your credit can improve. This is primarily due to the significant change in your debt-to-income ratio. Once your debts are discharged, they no longer weigh down your credit report. All those previously outstanding accounts will be marked as “included in bankruptcy” and eventually “discharged,” effectively zeroing out your debt.
Steps to Homeownership Post-Bankruptcy
While filing for bankruptcy does mean a waiting period before you can purchase a home, you can take steps to positively influence your credit score and financial standing in the meantime:
1. Review and Correct Your Credit Reports
Once your bankruptcy case concludes, pull your credit reports from TransUnion, Experian, and Equifax. Ensure all accounts are accurately marked as discharged. This is crucial for rebuilding credit.
2. Secure a Credit Card
Consider applying for a secured credit card. Use it responsibly, paying off the monthly balance to show lenders you can manage credit effectively.
3. Authorized User Accounts
If possible, become an authorized user on someone else’s credit card account. This can help boost your credit score without the risk of overspending.
4. Consider Other Credit Options
Explore small, manageable loans or credit lines and repay them promptly. This will diversify your credit portfolio and demonstrate reliability.
Waiting Periods and Mortgage Eligibility
The type of bankruptcy you file affects how soon you can buy a home:
Chapter 7 Bankruptcy
For most conventional mortgages, a waiting period of four years from the date of your Chapter 7 discharge is standard. During this time, focus on improving your credit score and financial profile.
Chapter 13 Bankruptcy
If you’re in Chapter 13, the situation is a bit more nuanced. You may be eligible for a mortgage while still in bankruptcy, provided you meet specific criteria. Staying current on your trustee payments and any post-petition mortgage payments is crucial. Approval will also require court consent and depend on your repayment history.
Alternative Loan Options
Remember loan options like VA, USDA, and FHA, which may have different requirements but still offer pathways to homeownership post-bankruptcy.
Filing for Bankruptcy? Contact Us for Help
In conclusion, bankruptcy is not the end of your home buying dreams. With diligence and strategic planning, you can rebuild your credit and finances, paving the way for future real estate opportunities. If you are struggling with debt or have questions, consider contacting a professional for a free, confidential consultation. They can offer guidance and support tailored to your financial situation, helping you return to homeownership. Remember, financial setbacks do not define your future—your actions do.
Call on the experienced New Jersey bankruptcy lawyers at Lee M. Perlman for guidance in filing for bankruptcy. You can contact us by calling (856) 751-4224 or by using our convenient online form.
