Buying a home after filing bankruptcy can be difficult. A Chapter 7 bankruptcy filing hurts the individual’s credit rating, making it nearly impossible to borrow money immediately thereafter. The bankruptcy stays on a person’s credit report for 10 years. However, there are ways to soften the effects of bankruptcy on the ability to get new financing.
In general, a Chapter 7 debtor will have to wait two to three years in order to secure a home financing loan. Conventional lenders (such as banks and credit unions) normally require a waiting period of three years after the Chapter 7 discharge before approving a home loan. Loans made via the U.S. Department of Agriculture (“USDA” rural housing loans) have a three-year waiting period. Home loans sponsored by the Veterans Administration (“VA loans”) or the Federal Housing Administration (“FHA loans”) have a two-year blackout for Chapter 7 filers.
There are certain exceptions in which a lender will approve a loan with a shorter-than-standard waiting period. Most often this involves unusual circumstances leading to a “forced bankruptcy,” which means the individual’s financial troubles were due to unforeseeable events. For example, a person with a solid employment and credit history suddenly fell ill. The treatment was exorbitantly expensive and the individual’s health insurance plan quickly reached the policy benefit limit. The person was left with hundreds of thousands of dollars in unpaid medical bills. The Chapter 7 resulted from bad luck rather than the debtor’s bad financial management. In such a scenario, the lender might make an exception on the waiting period.
Even in the absence of such circumstances, you can take steps to improve your chances of obtaining a home loan after a Chapter 7. The key is to establish a record of sound financial control and judicious use of debt. Moving forward, you must prioritize paying all bills (including rent and utilities) in full and on time. You should also take steps to re-establish credit as soon as possible. A good start is to find a secured charge card, in which cash is held by the card issuer to secure the amount of the spending limit. Over time, you should be able to get a low-limit unsecured card. A good plan is to use the cards regularly but pay off any balances immediately. A track record of good financial habits will work to outweigh any mistakes or unfortunate circumstances from the past.
Jeff Field & Associates maintains a large consumer bankruptcy practice. With six offices in the Atlanta, Marietta and Athens areas of Georgia, our law firm represents many individuals in Chapter 7 bankruptcy cases. If you are struggling with a debt problem, feel free to contact us online or call 404-381-1278 for an initial consultation.
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