Buying a House After Filing Bankrutpcy

How soon can I buy a house after filing bankruptcy is a question that many people often ask.  There is no clear answer to this question.  It depends upon a number of things like how well your credit score improves following bankruptcy, what your income situation is, and what other debt you have incurred after your bankruptcy discharge.  Other considerations are whether you still are the owners of a house that is still in foreclosure.

What is the Hurry to Jump Back Into Debt?

Generally speaking, the largest debt people have is owning a home.  Not only is there the mortgage payment, but you also have homeowner’s insurance, real estate taxes, and home maintenance which can add 30% more to the actual mortgage payment.  There may also be homeowner association fees.  So why are we in such a rush to take on huge debt?

Our society has placed a premium on home ownership.  Be it good or bad, we have this notion that we have to be homeowners.  In fact, our real goal should be saving money for emergencies, future necessary purchases, education, and retirement.  If you can rent comfortable accommodations for $200 per month less than it would cost you to purchase a home, you could save $2400 per month (easy math).  Likewise you don’t have a 15 to 30 year debt obligation that may be very difficult to get out from under depending upon the real estate market.

I am not against home ownership, but I am definitely in favor of making smart financial decisions and saving for the future.  Real estate can be a good investment, but how many people actually make money when it is time to sell?

Improved Credit Score

As I stated earlier, one consideration in the equation will be your credit score if you are going to borrow money.  How quickly your credit score rebounds after filing bankruptcy all depends upon what you do.  If you want to improve your credit score, you must obtain credit sparingly and use it wisely.  You have to pay your credit accounts on time and keep your running balances low.  In other words, borrow a little and pay it off every month.  Use cash more frequently than you swipe a credit card.  There is no magical formula, but you have to live below your means.

Your Income Situation

Again, when you apply for a mortgage, assuming you are going to borrow money to purchase a house, your income needs to be more than adequate.  Following the mortgage crisis of the early 2000’s, lenders are now requiring that your mortgage payment cannot exceed about 30% of your income.  That is a huge change compared to the loose lending practices before the crisis.  So, if your household brings in approximately $40,000 a year, your mortgage payment needs to be less than $1100 a month.

Other Debt Incurred Post Bankruptcy

Another consideration lenders consider when deciding to lend money is your debt to income ratio.  As stated above, your income will be a major consideration.  Also included is the amount of debt you have.  Following bankruptcy your debt position should have improved, but over a couple of years it may be creeping up again.  You may have needed to replace a car or two.  Or you could have suffered some major medical expenses after your bankruptcy that affect your debt position.  Regardless, it is important to minimize the amount of debt you are carrying if you plan on buying a home.

New Time Limits

One of the biggest factors out there affecting how soon you can purchase a home after bankruptcy is the lenders requirements.  I have been told by many of my previous clients as well as associates in the mortgage industry that most, if not all government secured loans now require a four year waiting period after bankruptcy before they will approve a loan to purchase a house.  Obviously there are non-government backed loans that will play, but who knows what the terms will be.  And, remember the saving money talk earlier, you may have the willpower to save the money outright and purchase on a cash basis.  Wouldn’t that be great.  You can also explore rent to own options.

The Bottom Line

There is no sure answer to the question “How Soon Can I Buy A House After Filing Bankruptcy?”  Regulators are going to impose certain barriers, but most of the answer will be found in how well you manage your financial affairs after filing bankruptcy.

Stop Garnishments by Filing Bankruptcy

Bankruptcy is one of the tried and true methods for stopping garnishments. The minute your case is filed all collection actions, including garnishments, stop. Wage garnishments and bank account garnishments place a heavy burden on your monthly income. Having your paycheck reduced by 25% is not pretty. Filing bankruptcy will protect your income.

I mentioned that bankruptcy is one of the methods for stopping garnishments. There is another way to stop a garnishment. You can pay your creditor. Of course they are going to want a lump sum cash payment. And they are not going to give you a couple of weeks or months to find the money. They are going to want that payment now.

You can try to negotiate with the creditor. But chances are they will not listen and they will not care. Your creditor does not care that you have other bills to pay. They don’t care that you need to pay your utilities and put food on the table. They just do not care about you or your family.

So, you have one creditor that just does not care about you or your situation. What about other debts? When you are losing 25% of your paycheck it is going to be very difficult to pay your other creditors. Your car might be repossessed. Your home may go into foreclosure. Your utilities might be shut off. You may be evicted.

Bankruptcy is a sure bet to stop garnishments. Just one garnishment may start an avalanche that buries you further in debt. Take control of the situation. Contact a bankruptcy attorney and find out how you can stop garnishments by filing bankruptcy.

Will Filing Bankruptcy Affect Your Credit Score?

Will filing bankruptcy affect your credit score?  Yes, but chances are that your credit score is already declining or will be shortly if you are considering filing bankruptcy.  Every missed payment decreases your credit score.  Enlisting in a debt settlement or debt management program has a negative impact on your credit score.  And yes filing bankruptcy will have a negative impact on your credit score.

Will filing bankruptcy affect your credit score forever?  That all depends on what you do following bankruptcy.  Your credit worthiness, which is what your credit score is supposed to reflect, will improve to some degree because you will have discharged a significant amount of debt.  Your debt to income ratio will improve after filing bankruptcy.  Your actions following bankruptcy will determine how soon your credit score recovers.

Keep in mind that it is primarily the creditors that you obtain loans from or have a charge account with that normally report to the credit bureaus.  Making timely payments on existing loans that you have reaffirmed, like car loans, will help to improve your credit score.  Obtaining new credit, within reason and that is manageable, and paying off the balances on time will improve your credit score.  There is no magic formula for how soon or when your credit score rebounds because it all depends upon what you do personally with your financial life after you have filed bankruptcy.

History is an important part of how your credit score is determined.  Establishing good financial practices over time will improve your credit score.  Establishing a savings plan to pay for unexpected expenses or to purchase something that is needed will help you avoid the tendency to rely credit.  Learning from past mistakes and avoiding the temptation to rely on credit to make ends meet will serve you well in the future and help you improve your credit score.  Will filing bankruptcy affect your credit score – Yes, but in the long run the affects may be positive.

Will I Lose My House if I File Bankruptcy?

This is a common concern for many people who are contemplating whether or not they should file bankruptcy.  The vast majority of people who own a home have one or two and sometimes three mortgages secured by their home.  Because of these mortgages, there is generally little equity or value beyond the amount owed on the mortgage(s).

Chapter 13 bankruptcy is available to most people who have a steady stream of income.  One of the goals of Chapter 13 is to allow people to keep their property while they pay some money back on the debts they owe.  So no you will not lose your house if you  file Ch 13 as long as you have sufficient income to meet your basic living expenses and can still afford to make the mortgage payments.

If Chapter 7 bankruptcy is the option you prefer, you will generally not lose your house as long as you are current on the payments, and your income is enough to allow you to continue making the mortgage payments and cover your basic living expenses.  In Ohio you also have exemptions of approximately $20,000.00 (single) and $40.000.00 (married) that allow you to claim as exempt against any equity you have in your residence.  So unless your house is will sell for an amount far exceeding the amount you owe on it, and you can continue to make the mortgage payments, you should not lose you house if you file Ch 7 bankruptcy.

But what about the Trustee, can’t he/she take my house anyway?  The trustee works for your creditors.  The Chapter 7 trustee’s job is to find assets he/she can turn into cash to pay to your creditors.  In order for the trustee to benefit from taking your house he has to be able to sell it for a profit after he pays the mortgage(s), taxes, and you for your exemption amount.  Typically you will not lose your house because the trustee will not profit from selling your house.

Please contact me at 740-369-6812 to discuss your situation and answer any further questions.