Fundamentally, bankruptcy is about economic freedom. This federal debt relief program helps people regain control of their own finances. Therefore, many people do not even need to wait until their bankruptcies are discharged to buy houses. So, even if you file bankruptcy now, you may be able to take advantage of record-low mortgage rates.
Current and former bankruptcy debtors will probably not qualify for the lowest rates. Furthermore, some houses, especially some large houses, might be unavailable to them. But the door is not completely closed. Moreover, a Philadelphia bankruptcy lawyer can point you in the right direction and give you the most home purchase options.
Benefits of Bankruptcy
Most people have little or no official or financial protection from the storms of life. Many consumer protections in the Fair Debt Collections Practices Act have fallen by the wayside. Additionally, most Pennsylvanians have less than $1,000 in savings.
Bankruptcy offers short term and long term shelter from divorce, job loss, and other financial storms. This shelter begins with the Automatic Stay. Section 362 of the Bankruptcy Code prevents creditors from taking adverse actions like:
- Foreclosing property,
- Garnishing wages,
- Levying bank accounts,
- Harassing debtors, and
- Repossessing property.
Unless debtors have a recent discharge or dismissal on their records, the Automatic Stay takes full effect immediately and remains in place until the judge closes the case.
When judges close Chapter 7 or Chapter 13 bankruptcies, they also discharge designated unsecured debts, such as medical bills and credit cards. Generally, the bankruptcy petitioners make these designations. For various reasons, some people want to keep paying certain unsecured debts. Medical bills are a good example. Unless doctors are paid, bankruptcy or not, they usually refuse to provide further services.
The bottom line is that bankruptcy puts you in the financial driver’s seat. Creditors do not dictate events. That power belongs to you.
Buying a House During Bankruptcy
Generally, Chapter 7 bankruptcies only last a few months. Therefore, most people wait until the judge closes the bankruptcy to buy a house. However, the home purchase wheels might already be moving when a debtor must file for bankruptcy. As outlined below, this filing might not affect the purchase process.
Chapter 13 is a different story. These bankruptcies usually last three or five years. A lot can happen during that time period. Changing families keep changing. These families often need more space or a different living environment.
In these situations, a Philadelphia bankruptcy lawyer can file a motion to incur additional debt. This motion must include all the proposed sale terms. Most sellers generate dummy contracts to attach to these motions. Additionally, debtors must prove that the purchase is reasonable and necessary. Furthermore, in a Chapter 13, the debtor must prove that the debt payments will not affect the debt consolidation payments.
Creditors often object to these motions. They assert that, rather than buying a house, the debtor should increase the monthly debt consolidation payment.
Buying a House After Bankruptcy
The waiting period for a post-bankruptcy mortgage loan is between one and four years. The exact time depends on the type of case filed and the type of loan sought (FHA, VA, etc.). Sometimes, the trustee must approve these loans.
But we are getting ahead of ourselves. Former bankruptcy debtors will probably not qualify for a mortgage unless they have laid the proper groundwork.
When you try to borrow money, do not try to hide your past credit problems. Tell the lender about your prior filing before the lender runs your credit report. If you are upfront, and you have a reasonable explanation for the filing, you have a much better chance of approval. That’s especially true if the lender sees you have tried to raise your credit score since filing bankruptcy.
Your attorney can connect you with lenders who work with people that have damaged credit. These professional relationships make the loan process much easier for everyone.
If you file bankruptcy, you can still buy a house. Moreover, you can usually buy a house in your own time and on your own terms. For a free consultation with a bankruptcy lawyer in Philadelphia, contact Bankruptcy Done Right. After-hours and virtual visits are available.