Life After Bankruptcy: Rebuilding Credit and Buying a New Home after the Filing of a Bankruptcy
Oftentimes, when filing a bankruptcy, people ask me how long it will take to re-build their credit and be eligible to purchase a home in the future. There is no magic answer to this question. It is true that a bankruptcy does stay on your credit report for 8 years but you can start working to re-build credit over time. A focus on budgeting and saving will help tremendously. The re-building of credit is not a sprint, but it will eventually rise overtime.
After the filing of a bankruptcy you want to make sure all three credit bureaus –Equifax, Experian and TransUnion show that your debts have been discharged in bankruptcy. This is important because you want the accounts to accurately reflect that they have been eliminated. This will help with your process of re-building credit.
If you have the opportunity to reaffirm on a secured debt such as a car loan or home loans in bankruptcy, that can help improve your credit after bankruptcy. To reaffirm a debt signals that you want to continue to make payments on the account and continue to keep the asset, and not have the debt discharged in your bankruptcy. Reaffirming on a debt in your bankruptcy is a big decision, so you will want to make sure you fully understand the consequences and will want to discuss thiswith your bankruptcy attorney.
You will want to re-establish credit after your bankruptcy. A good way to help accomplish this is to obtain a secured credit card. This is when a bank allows you to deposit money into a savings account and issue a credit card to that account. Another alternative is to open up a credit card prior to filing your bankruptcy but do not incur any debt on it. It will not be listed in your bankruptcy because it hasa zero balance. After the bankruptcy, you can incur minimal charges on it and pay off the entire balance each month which will help re-establish your credit.
In regards to when you will be eligible to purchase a new home in the future following a bankruptcy, there is no hard and fast rule. Generally speaking, it seems that Lenders will require that it be 2 years from the date of discharge to qualify for a FHA loan with a maximum loan amount of $337,000.00. This will also require that you pay mortgage insurance and have a minimum credit score of about 640. This statement applies to a situation where there was no surrender of real estate or foreclosure in your previous bankruptcy. Generally speaking, eligibility for a conventional home loan is usually 5 years from date of discharge.
Be leary of the time line when you surrender real estate in your bankruptcy. If in your bankruptcy you surrender your real estate and let it go into foreclosure, you could get your discharge but not actually have your property sold i.e. transferred out of your name in a foreclosure sale for some time after the discharge. This has been a problem in the last few years since the downfall in the real estate market. Lenders are not aggressively acting upon defaults in mortgage loans and following through with foreclosures because they do not want another foreclosure property on their books. From a lending standpoint, you will not be eligible for a home loan until 3 years from the date the transfer of ownership in the property takes place. So for example, in a foreclosure, it would be 3 years from the date the Sheriff’s deed gets recorded following the confirmation of the sale date.
In the end the biggest thing to do after a bankruptcy is to STAY POSITIVE. I always tell my clients that availability of a bankruptcy filing is a lifeline available to each and every one of us when things happen in our lives that do not go according to our plan. A bankruptcy filing is availableto help you get that fresh start. After the filing you need to stay positive, move forward with your fresh start and go on with life and put everything in the past behind you. There is life after bankruptcy. Being positive is going to have a tremendous impact on how fast you bounce back and improve your credit. Do not stick your head in the sand and approach life in a negative way because you had to file a bankruptcy. You need to be aggressive and positive and find your next success because it is out there for you.
Attorney Joanna Wilson and the Schuh & Goldberg team, are here to help you navigate through this time in your life and help you get the fresh start that you may need.