Can Filing Bankruptcy Prevent Me From Buying a House?
You can set your mind at ease, because the short answer to this question is yes: it is entirely possible to purchase a home after filing for Chapter 13 or Chapter 7 bankruptcy. Having a bankruptcy in your past is not an insurmountable barrier to home-ownership, nor does a former bankruptcy preclude the possibility of renting an apartment. Countless people have gone on to successfully buy homes after receiving a discharge. That being said, there are some considerations which debtors should be mindful of. In this article, our bankruptcy lawyers will explain some of the factors you should think about if you’re planning on filing for bankruptcy and want to buy a house.
Focus on Rebuilding Good Credit After Bankruptcy
The entire purpose of bankruptcy is to give the debtor a clean financial slate by eliminating most if not all of the petitioner’s debts. This includes debt related to medical bills, credit card bills, personal loans, business debts, social security over-payments, past due rent, civil court judgments (excluding fraud), collection agency accounts, and many other types of debt. Bankruptcy is meant to unburden debtors, not act as a permanent financial punishment, and it is absolutely possible for most debtors to rebuild good, healthy credit after getting a discharge.
Needless to say, rebuilding strong credit is an absolute must for former filers who want to become homeowners. When you approach a bank for a loan to buy a home, the bank will want to review your credit, which means you need to take the proper steps to prepare for financial scrutiny by the lending institution.
With most of your former debts now eliminated, it should be easier to consistently make timely payments on your utility bills, credit card bills, and other financial obligations, which will help to raise your credit score. Many people begin to see in improvements in as little as six months to a year. The important part is not to get discouraged: keep making payments, and your score will gradually increase.
When Can I Get a Home Loan After Filing for Bankruptcy?
Chapter 7 bankruptcy stays on your credit report for 10 years, while the record of Chapter 13 will last for seven years. Therefore, many people think they will not be able to buy a home until at least seven or 10 years have passed.
This is simply not true. Traditionally, the typical wait-time for an FHA loan after Chapter 7 is just two years. However, an even shorter turnaround for Chapter 7 may be possible depending on the circumstances.
If two years is too long to wait and you’re determined to buy a home sooner, you may be able to obtain a loan from the Federal Housing Administration as early as one year after your bankruptcy is discharged. However, in order to be approved for an FHA loan within one year, you’ll need to prove three factors:
- Your bankruptcy was caused by circumstances that were beyond your control, such as debt arising from a medical emergency.
- Your income was reduced by at least 20% for at least six months.
- The circumstances leading to the bankruptcy are not likely to be repeated or to reoccur.
If you filed for Chapter 13, which lasts for three to five years, you’ll need to produce proof that you’ve been keeping up with your repayment plan for at least one year. Even then, you’ll also need to obtain approval from the court before you can get a mortgage through the FHA.
Waiting Until Your Bankruptcy is Discharged
Last but not least, it’s important to emphasize that you will not be able to buy a home until your bankruptcy has been discharged (completed successfully). Unless you get special court permission as noted above for Chapter 13, you will normally not be able to take out any more loans while your case is still in progress.
If your case is still pending, be sure to follow the court’s rules carefully, ideally with help from an experienced bankruptcy attorney. If you make a mistake, your case could be dismissed instead of discharged, which means you will still be liable for your original debts, and will not be in a financial position to get a loan to buy a house. If your case is dismissed, you will either have to file again or appeal the original ruling.
Call Our Pennsylvania Bankruptcy Lawyers Today
If you’re thinking about filing for bankruptcy in Pennsylvania or New Jersey, the bankruptcy attorneys of Young, Marr & Associates can help. We have over 20 years of experience handling Chapter 7 and Chapter 13 cases. To set up a free consultation, call our law offices right away at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania.