Filing for bankruptcy can have a lasting effect on your finances. Even after your debts are successfully discharged, bankruptcy remains on your credit report for years to come. Many clients wonder if they’ll be able to get a mortgage after bankruptcy—and if so, when the best time is to apply.
Depending on the type of bankruptcy petition you file, the answer may be different. Here’s a basic overview of how bankruptcy can affect applying for a mortgage. As always, be sure to consult with your attorney. The specific details of your case may affect the answer.
Chapter 7 Bankruptcy
When you file for Chapter 7 bankruptcy, some assets could be sold off to pay your creditors, though that typically doesn’t happen, for multiple reasons. But either way, you will receive your bankruptcy “discharge.” Once the case is completed, you will no longer have the debt hanging over your head.
A Chapter 7 bankruptcy stays on your credit report for a full 10 years. However, that doesn’t mean you’ll have to wait the entire decade to get a mortgage. As long as you actively work to rebuild your credit score, and avoid accruing more unpaid debt, you may be able to get a mortgage in a few short years. Don’t try to apply while your bankruptcy case is still in court, though—lenders are unlikely to want to extend credit at that point.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows you to hang on to your assets. You’ll come up with a three to five-year repayment plan. At the end of the repayment period, if you’ve kept up with your payments faithfully, your debt is discharged.
A Chapter 13 bankruptcy only stays on your credit report for seven years. However, it’s wise to forego a mortgage application until after your repayment plan is complete.
As you can see, filing for bankruptcy will affect your financial affairs for up to a decade. On the other hand, it’s not the credit score death sentence that it might initially seem. As long as you meet your obligations and have a good debt-to-income ratio, lenders are more likely to take a chance.
For assistance with your bankruptcy case, call Dworken & Bernstein today.
