We are often asked by clients if they will ever be able to buy a home if they file for bankruptcy. Bankruptcy offers consumers a fresh start, meaning most consumers will walk away from all their unsecured debt like credit cards, medical debt, car repossessions, foreclosures, and collection judgments. The cost of this fresh start is that you will need to rebuild your credit history to qualify for loans after filing bankruptcy.
Consumers applying for a mortgage after bankruptcy will have to meet the same requirements as consumers applying that have not filed for bankruptcy. After your bankruptcy case closes, begin building up a savings account for emergencies, larger purchases, and for a down payment on your future home. Mortgage lenders are looking for applicants that are able to maintain a stable employment history. Contributing on a regular basis to your retirement account will also allow lenders to see you as a reliable investment.
It is crucial after your bankruptcy to maintain a perfect credit history. It is essential you make your car loan payments and student loan payments on time. Do not write any checks that cannot be covered by your bank account. You may consider opening a secured credit card to begin rebuilding your credit history. Unlike a regular, unsecured credit card, a secured card requires you to put a deposit on the card and you are only able to spend up to that deposit amount. So if your deposit is $300.00, you can charge up to $300.00 on the card. Sometimes cards may allow you to increase your deposit over time or may increase your spending limit without requiring any additional deposit. Be careful that you never spend more than you can pay off in one month.
Mortgage lenders will access your ability to qualify for a mortgage on your debt to income ratio. If you allow your credit card debt to carry over month to month, then you will likely find yourself in a position where you will be unable to qualify for a mortgage due to your debt to income ratio.
If you have maintained a perfect credit history after your bankruptcy case, you may be able to qualify for a FHA or VA mortgage approximately two years after your discharge. You should receive your discharge in a chapter 7 case approximately 90 days after your case is filed. In a chapter 13, your discharge will be entered three or five years after your case is filed. If you are applying for a USDA mortgage, you will need to wait at least three years after your chapter 7 discharge and one year after your chapter 13 discharge. Other lenders may start considering your mortgage application about four years after your chapter 7 discharge and two years after a chapter 13 discharge.
Take the time after your bankruptcy to rebuild your credit history, establish a savings account, and keep debt balances low. Bankruptcy may give you the fresh start you need to get back on track and into a home sooner than you thought possible.
If you would like to discuss whether bankruptcy is a good option for your family, call or email our Kansas City bankruptcy attorneys for a free in-office consultation.