Many homeowners who were affected by the crash a decade ago (was it that long ago?) owned homes and filed for bankruptcy. Here are some bulletpoints on bankruptcy and mortgages:
- There is no such thing as, "I didn't put my house into my bankruptcy". When you file for bankruptcy, everything is IN the bankruptcy. You can remove things from your bankruptcy by reaffirming the debt, but you cannot pick and choose what goes INto your bankruptcy.
- As soon as you file for bankruptcy. whatever debt you have must immediately stop reporting to your credit (this is why lenders sometimes miss mortgages which were in a bankruptcy. Sometimes the mortgage removes itself entirely from the credit report, the loan officer does not see it at all, the homebuyer does not mention it because their bankruptcy attorney told them that they didn't owe the mortgage and then underwriting picks up on the mortgage after getting the bankruptcy papers -- this is why it is always good for a borrower to provide ALL pages of the bankruptcy to the loan officer up front (even if the loan officer does not ask).
- If you wish to keep paying on your mortgage after the filing / discharge, that is fine. Your servicer will be more than happy to keep collecting payments from you.
- If you stop making payments on your mortgage after filing and do not re-affirm the debt, it will have no effect on your credit and if you do a Chapter 7, you are not responsible for the debt ever.
- After the bankruptcy is discharged, a borrower should open up a few credit cards, pay them off immediately, but use them at the gas station and grocery store monthly just to keep them active and begin to re-establish credit. Most borrowers whom I have pulled credit on are in the 650 credit score range 2 years after their bankruptcy if they were not late on anything since the BK and they opened up a few accounts. I would never recommend taking out a car loan or something like that to establish credit. Credit cards are the best way to re-establish credit.
- VA loans require 2 years from the discharge of a Chapter 7 bankruptcy to qualify
- FHA loans require 2 years from the discharge of a Chapter 7 bankruptcy to qualify
- USDA loans require 3 years from the discharge of a Chapter 7 bankruptcy to qualify (even though you can typically get exceptions at the 2-year mark)
- Conventional loans require 4 years from the discharge of a Chapter 7 bankruptcy to qualify.
As always, I can be reached at 1-216-780-1103 for questions, scenarios or Pre-Approvals for your clients. I am licensed in 13 states to do business and we are the lender, so you will get very fast answers to your questions.
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