Filing bankruptcy is a major decision that should never be taken lightly. While filing chapter 7 or chapter 13 bankruptcy can help you move past otherwise insurmountable debt, it will also have a significant impact on your life and financial situation for years afterward. One specific question that a lot of people have is whether or not they will be able to buy house after bankruptcy. In this post, we will discuss the process of buying a home after a chapter 7 bankruptcy filing.
How Does Chapter 7 Bankruptcy Work?
The goal of chapter 7 bankruptcy is to liquidate your debt when the burden becomes too much. While chapter 7 can include secured debts, most people who file have significant amounts of unsecured debts that they can not realistically repay. Most of these debts come from credit cards, medical bills, and personal loans. There are also some important qualifications for chapter 7 eligibility.
Someone who is interested in chapter 7 most likely has a poor credit score and a credit history that they would like everyone to forget. Chapter 7 does not provide a way to erase your credit report but it does open the door for you to improve it in the long-term.
Can I Buy a House After Filing Chapter 7?
The short answer is yes, but not immediately. Typically, obtaining a favorable home loan with palatable interests rates is directly dependent on your credit history and financial records. This means that improving your score is of utmost importance.
While obtaining a regular bank loan is probably out of the question, the Federal Housing Agency (FHA) offers loans for people who have filed chapter 7 bankruptcy. Individuals are eligible for an FHA loan within two years of the chapter 7 bankruptcy discharge. According to the FHA, this is assuming that “the borrower has re-established good credit (or has chosen not to incur new credit obligations), and has demonstrated an ability to manage financial affairs.”
If you choose to file chapter 7, it is paramount that you handle your finances in a respectable way. This means that you should focus on doing the following:
- Keep up with payments: The worst thing you could possibly do is fall behind on your payments after a successful chapter 7 bankruptcy. Whether it be your mortgage, car payment, or some other bill, failing to make your payments on time will only increase your two-year waiting period.
- Save money: Once you erase some of your overbearing debt, you should have more financial flexibility. If you want to purchase a home, you should use this flexibility to save money for your down payment. The more money you can put down, the better your loan terms and monthly mortgage payments will be.
- Improve your credit: No matter what you do, your credit will still be tainted by bankruptcy even after you wait two years. However, you can still take steps to boost your credit score. Making payments on time will give you a boost and show potential lenders that you are back on track.
When you decide to purchase a home after filing chapter 7 bankruptcy, you will need to obtain a loan from an alternative source. Banks do not want to risk financing someone who has recently filed bankruptcy, but there are other options.
The FHA is a common source of these loans. According to realtor.com, they “will allow loans with credit scores as low as 540 with 20% down” and will “require that you put down a minimum of 3.5%.” If you are interested in learning more about the loan options that the FHA offers individuals who have filed chapter 7, check out their website to learn more.
If you are considering filing chapter 7 bankruptcy, our team of bankruptcy attorneys is ready to assist you. Every bankruptcy case is different, so it is important that we meet so we can better understand your circumstances. Contact the Law Offices of Jeffrey B. Kelly today to discuss your needs. Call us at 770-637-1598 to schedule a consultation.