As the credit markets continue to contract and the Federal Reserve struggles to create a plan to spur borrowing, bankruptcy debtors still have the opportunity to borrow money to buy homes. Let's take a look at how bankruptcy debtors can get a mortgage during or after bankruptcy:
After Chapter 7 Bankruptcy
A debtor is often able to obtain a subprime mortgage less than a year after their bankruptcy discharge. However, if they are willing to wait an additional two years they can often get prime mortgage rates or at least close to prime. FHA mortgages are available to Chapter 7 debtors two years after bankruptcy, while conventional loans are accessible after four years. If a Chapter 7 debtor has done an exceptional job in rebuilding their credit, they may be able to get a conventional loan only 3 years after their bankruptcy discharge. Three years is enough time to save a sizeable down payment and build the type of credit rating that can bring interest rates down significantly.
During Chapter 13 Bankruptcy
Debtors in Chapter 13 bankruptcy are often able to get mortgage loans right after they file their petition. Many lenders have programs designed for Chapter 13 debtors; but in order for a debtor to take on new debt, they need to receive permission from the bankruptcy trustee. Alternatively, the bankruptcy debtor can dismiss their Chapter 13 bankruptcy case and take on the new mortgage debt without the bankruptcy trustee's consent. However, there are several ramifications of dismissing a Chapter 13 bankruptcy, the biggest one is the loss of the automatic stay protection. Once the Chapter 13 bankruptcy case is dismissed, creditors can resume collection actions against the debtor. If the debtor does not have a plan for repaying their debts, it's not recommended that they dismiss their bankruptcy to take on a mortgage.
If a debtor is reaching the end of their Chapter 13 bankruptcy case, they may immediately apply for FHA and VA mortgage loans. Both programs will consider debtors 12 months after they have filed their Chapter 13 bankruptcy petition.
Subprime Pitfalls
Whether a debtor is in Chapter 13 bankruptcy or has recently exited bankruptcy, they may only have access to subprime loans, especially if they haven't taken the time to rebuild their credit properly. When dealing with subprime mortgages, bankruptcy debtors must be aware that they are swimming with sharks --- literally. Subprime mortgages have high interest rates and terms which can land a debtor in delinquency or default if they don't have a solid plan. This is especially the danger with adjustable rate mortgages which may have low interest rates and monthly payments for the first few years; but then balloon up to two or three times the original amount. If the debtor is unable to refinance, they may succumb to foreclosure or need to file another bankruptcy. Know the risks and proceed with caution if you decide to go with these types of mortgages after bankruptcy.
Reed Allmand, sponsoring attorney for Bankruptcy.net, is constantly looking for ways to provide the best financial information for his clients. Whether you are considering filing for bankruptcy, or are currently going through a Chapter 7 or Chapter 13, visit http://www.bankruptcy.net for up to date news and information you need to know.
By Reed Allmand
After Chapter 7 Bankruptcy
A debtor is often able to obtain a subprime mortgage less than a year after their bankruptcy discharge. However, if they are willing to wait an additional two years they can often get prime mortgage rates or at least close to prime. FHA mortgages are available to Chapter 7 debtors two years after bankruptcy, while conventional loans are accessible after four years. If a Chapter 7 debtor has done an exceptional job in rebuilding their credit, they may be able to get a conventional loan only 3 years after their bankruptcy discharge. Three years is enough time to save a sizeable down payment and build the type of credit rating that can bring interest rates down significantly.
During Chapter 13 Bankruptcy
Debtors in Chapter 13 bankruptcy are often able to get mortgage loans right after they file their petition. Many lenders have programs designed for Chapter 13 debtors; but in order for a debtor to take on new debt, they need to receive permission from the bankruptcy trustee. Alternatively, the bankruptcy debtor can dismiss their Chapter 13 bankruptcy case and take on the new mortgage debt without the bankruptcy trustee's consent. However, there are several ramifications of dismissing a Chapter 13 bankruptcy, the biggest one is the loss of the automatic stay protection. Once the Chapter 13 bankruptcy case is dismissed, creditors can resume collection actions against the debtor. If the debtor does not have a plan for repaying their debts, it's not recommended that they dismiss their bankruptcy to take on a mortgage.
If a debtor is reaching the end of their Chapter 13 bankruptcy case, they may immediately apply for FHA and VA mortgage loans. Both programs will consider debtors 12 months after they have filed their Chapter 13 bankruptcy petition.
Subprime Pitfalls
Whether a debtor is in Chapter 13 bankruptcy or has recently exited bankruptcy, they may only have access to subprime loans, especially if they haven't taken the time to rebuild their credit properly. When dealing with subprime mortgages, bankruptcy debtors must be aware that they are swimming with sharks --- literally. Subprime mortgages have high interest rates and terms which can land a debtor in delinquency or default if they don't have a solid plan. This is especially the danger with adjustable rate mortgages which may have low interest rates and monthly payments for the first few years; but then balloon up to two or three times the original amount. If the debtor is unable to refinance, they may succumb to foreclosure or need to file another bankruptcy. Know the risks and proceed with caution if you decide to go with these types of mortgages after bankruptcy.
Reed Allmand, sponsoring attorney for Bankruptcy.net, is constantly looking for ways to provide the best financial information for his clients. Whether you are considering filing for bankruptcy, or are currently going through a Chapter 7 or Chapter 13, visit http://www.bankruptcy.net for up to date news and information you need to know.
By Reed Allmand
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