Can Bankruptcy Affect My Ability to Buy a Home?

While bankruptcy may afford you certain necessary protections against your creditors now, it may create negative interactions with mortgage lenders and housing programs in the future. This is why, when it comes to bankruptcy, you must think in the long term. Without further ado, please read on to discover whether filing for bankruptcy will affect your future opportunities to buy a home and how a seasoned Louisville, Kentucky consumer bankruptcy lawyer at Schwartz Bankruptcy Law Center can guide your decisions during and after this legal process.

Can filing for bankruptcy affect my current mortgage loan?

Before you worry about the future, you must be concerned with how a bankruptcy filing will affect you right now. That is, you must get a good idea of whether you will get to keep and continue living in your primary residence during your case proceedings.

Well, your Chapter 7 bankruptcy case does not automatically terminate your mortgage loan agreement. So, you must continue meeting your payment obligations until, unfortunately, your bankruptcy trustee advises you to sell your home and use its funds to pay your creditors. This is better than having your lender foreclose upon it if you start falling behind first.

You may have a better chance at maintaining your current mortgage loan agreement through a Chapter 13 bankruptcy case. This is because you may incorporate your past-due payments in your three- to five-year repayment plan. All the while, this plan offers a sustainable approach to save enough funds to keep up with your current mortgage payments.

Can a bankruptcy record affect my ability to buy a new home?

While having a history of bankruptcy may not permanently prevent your chances at homeownership, it may delay the timeline in which you qualify. That is, most mortgage lenders would like you to wait two to four years after your Chapter 7 bankruptcy, or one to two years after Chapter 13, before you apply for a loan.

But even after enduring this waiting period, a mortgage lender may still give you a poor loan offer. Specifically, they may compensate for the seemingly increased risk of giving you a loan with higher interest rates, shorter repayment periods, etc.

With this, consider exploring an FHA loan or a VA loan, which are known to provide more leniency for recent bankruptcy filers. Otherwise, consult an attorney on the optimal time to apply and whether the loan offer you ultimately received is a good deal.

Unfortunately, it may not help your mortgage loan application when, after filing for bankruptcy, your credit score inevitably plummets. If your credit score was above 700, you can expect it to drop by 200 to 240 points. For average credit scores around 680, this may decrease by 130 to 150 points, and low credit scores may just get even lower.

This is to say that during your one- to four-year waiting period, you should focus on rebuilding your credit. This may be accomplished by applying for secured credit cards and small personal loans, and of course, ensuring you are diligent in making your repayments on time. This may prove to prospective mortage lenders that your bankruptcy history no longer defines you.

To conclude, before you step into a Kentucky bankruptcy courtroom, you must seek a competent Louisville, Kentucky consumer bankruptcy lawyer to stand by your side. Please contact our office, Schwartz Bankruptcy Law Center, as soon as you are ready.