Going through bankruptcy can be a real challenge to any adult. It may eliminate your debts but is has adverse effects on the other financial aspects of your life. Apart from losing your personal finances, the process also negatively impacts one’s credit score. As you are left broke with your home foreclosed, you now question if there’s still a chance that you can purchase a new house. The answer is yes, you still can.
There’s one very important thing to do first, though. This is to discharge your bankruptcy through a bankruptcy court. The discharge is an order from the court that releases the debtor from his liability on certain debts and prevents creditors from collecting on your discharged debts. Once your bankruptcy is discharged, you no longer have to pay your debts and your creditors won’t have any chance to make you pay what you owe.
Although this may not put an end to your case, many lenders are open to accommodating people who have filed for bankruptcy and have them discharged by the court. These lending companies take into account a person’s credit report above anything else.
Normally, a bankruptcy status remains in the credit report for up to 10 years. according to Simon Resnik, bankruptcy attorney in Los Angeles. However, he said a person who has gone through this process need not wait too long to be able to avail of a new mortgage loan. The best step to take is to improve your credit report and keep it up to date.
For some lenders, the so-called seasoning or waiting period can take a minimum of two to three years. This will depend on the type of bankruptcy filed, whether it’s Chapter 7 or Chapter 13. Do take note that the waiting period usually starts from the time the bankruptcy is discharged and not the time when the bankruptcy was filed as some might believe.
What To Do
If you’re bent on applying for a new mortgage loan, you need to review your credit report first. For those in the U.S., each year you can avail of three free credit reports from each of the national credit bureaus.
Next, make sure that you’re paying your bills on time. If you are able to do this, you can get the attention of lenders with regards to your credit worthiness.
You may want to avail as well of a secured credit card once your bankruptcy has been discharged. This is a low-limit credit card but do ensure that you keep your balances below 30 percent of your credit limit to gain a favorable credit score moving forward.
Another positive step to take is to maintain a savings account. This will make you more aware of your responsibility to save a portion of your income which, in turn, will also show your credit worthiness.
Finally, do explore other options such as the Neighborhood Assistance Corporation of America (NACA), a non-profit organization that serves as a bridge between potential homeowners and banks. It has 40 national offices spread out across the country and offers a free seminar on homebuying. It also offers a no-downpayment, market rate conventional mortgage.