How Bankruptcy Affects Ability to Purchase a Home


Can you buy a house if you have filed for bankruptcy? This question crops up very often in the minds of those who have experienced the dreaded "B" word, or Bankruptcy. This is considered to be one of the most feared and stressful times in anyone's life. Apart from the financial aspect of such a condition, it can also drain you emotionally. This is a state that can leave you in utter ruins and scar you for life. It takes a lot of heart to come out of this situation strong as before.

Whether it is buying a new home or refinancing an existing property, getting an institution to lend you money, after you have filed for bankruptcy, is often a very daunting task. Many lenders shy away from lending money to someone who has been declared bankrupt. The reason is only too obvious. Who would want to lend money to a man who is broke?

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For those in such situations, there is some light at the end of the tunnel. There are basically two types of filings which are normally done in case an individual is bankrupt. These are Chapter 7 filings and Chapter 13 filings. While chapter 7 calls for liquidation of all assets with complete financial disclosure, chapter 13 is more circumspect and safe. It is normally used for re-organization of financial structure of a person's assets, liability and budget. This situation is far safer for debtors as debtor protection is guaranteed in such cases. Even taxes to be paid are put on hold until such re-organization is completed.

When you apply for mortgage finance, you need to first have a sufficient time gap between the filing for bankruptcy and application for the loan. It is advisable to have at least a two year gap. Then you need to have authentic documented records about a steady flow of income in the present scenario. This coupled with a decent bank balance can certainly tilt the balances in favor of getting the necessary approval for the finance. Of course, it will be difficult to get a bigger amount sanctioned in such cases, so it is prudent that you start small and move to bigger property at a later stage. Different companies view bankruptcy differently; hence it is necessary to disclose all information, so that you are not held liable for suppressing important financial information. Re-establishing your credit worthiness is another aspect that you will have to build on as years pass by. You need to prove to your lenders that you are disciplined enough to repay back the amount borrowed. Many lenders reward you for your disciplined effort, by increasing the lending amount, if asked for, especially if you have been paying of dues on time.

An experienced bankruptcy attorney should be hired in such cases, as he will help you tide over the crisis with crucial advice.


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