Buying a home after bankruptcy

Answer

The desired result from a bankruptcy proceeding is to have all or at least some of your personal debt forgiven which is formally known as discharged. Chapter 7 allows discharge of your entire debt without payment. This is allowed for people who have no assets of any kind and limited income.

If you have money and assets

Under Chapter 13, the court determines that you actually do have enough money and other assets to pay a certain percentage of your existing debt. The bankruptcy court appoints a trustee to determine how much you should pay and spreads the payments over five years. These payments are generally painful and many people are not able to complete the plan. Those people do not get their debt discharged and the bankruptcy is dismissed and all of the original debts remain.

On credit report for 10 years

Whether you had debt discharged in a Chapter 7 or Chapter 13 bankruptcy, the event will be reported on your credit reports for ten years from the date of discharge. Because Chapter 13 usually involves a five year pay-out plan, it will take that much longer to get to a discharge. That does not mean you won’t be able to buy a home for ten years.

Stable employment and new credit

Generally, if you are back on your feet with stable employment, steady earnings, and some new credit, you can probably qualify for a home loan within two-three years following discharge. It is extremely important to maintain timely payments on the debts which you re-affirmed in the bankruptcy such as a car note even after discharge.

Credit card for new credit

The best type of “new” credit would be a secured credit card which has been in operation for at least one year. These can be arranged with your personal bank or credit union. These simple steps will generally get your credit scores to an acceptable level for home buying. Don’t forget to explore the possible need for a cash down payment well before you begin the home buying process. If you are a veteran, your credit score must be 620 to qualify for a VA loan.

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