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The Realities of Getting a Mortgage After Filing Bankruptcy

Written by Bruce Feinstein, Esq. on . Posted in Bankruptcy Blog

Will I ever get a mortgage after I file for bankruptcy?

Many of our clients, and prospective clients, express serious concerns about how easy or difficult it is to get a mortgage after filing for bankruptcy. After all, it is no secret that a bankruptcy filing will appear on your credit report for up to 10 years (7 years for a Chapter 13).

While it can be difficult to obtain a mortgage after a bankruptcy filing, it is by no means impossible. Our offices have had many clients that were able to secure a mortgage for a new or used home even after filing for bankruptcy. The question remains, “What can I do to prepare for applying for a mortgage knowing that I have a bankruptcy on my credit report?”
First, do not run away from having credit cards. Many clients express to us that after they’ve gone through the experience of filing for bankruptcy, they are afraid to use credits for fear of having to file for bankruptcy again in the future. It is important to learn the lessons of credit card abuse, but if you want a mortgage, or any loan, going forward you are going to have to build credit.

A necessary step to rebuilding credit after bankruptcy is to apply for and secure one or two credit cards, even if they need to be secured credit cards. The next three steps are critical for rebuilding your credit score:

1) Keep a small rolling balance on the card (Make sure that your credit/debt ratio is about 30-40%. If your available credit is $500 DO NOT spend $495)

2) Make sure that you make your payment 4-5 days before the due date so that the payment posts before the due date passes.  One late payment will reflect negatively on your credit report and can stay on your report for up to a year.

3) Make sure that your monthly payments are slightly greater than the minimum. It does not have to be a lot higher, just make sure that you are paying a little bit more than your minimum payment each month.

If you follow these steps, you are on your way to rebuilding your credit and successfully getting approved for a home mortgage.

Banks take into consideration which chapter of bankruptcy you filed.  If you filed for a Chapter 7 bankruptcy, most of your debts were likely discharged without any repayment plan, but if you filed for a Chapter 13 bankruptcy, you were involved in a payment plan through the bankruptcy court. The repayment percentage of a Chapter 13 plan varies. The bank will look more favorably on a loan applicant who had entered into a 100% repayment plan, and less so for a person that entered into a 5% repayment plan in a Chapter 13 or who filed a Chapter 7 (0% repayment)  .

And when you apply for your mortgage loan, don’t just send in the application and hope for the best. If you are paid back a high percentage of your debts in a Chapter 13 repayment plan, send in a letter with your application telling them so. Being proactive can help your cause.

These are some of the basic strategies involved in preparing yourself for securing a mortgage loan after filing for bankruptcy. Every situation is different, and if you are considering bankruptcy, or need help post-bankruptcy Call the Law Offices of Bruce Feinstein, Esq. now for a Free Consultation!

(718) 514-9770

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