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.