Q: It looks like my husband and I will have no other option but to file bankruptcy. One of our biggest concerns is that we have been told that the bankruptcy will destroy our credit and we will not be able to buy a home in the future. Is this true?
Name withheld by request.
A: Good question and I'm glad you asked. One of the biggest problems we're seeing with the difficult economy is many people losing their homes and in some instances, forced to file bankruptcy. I often hear concern from people regarding their future options after bankruptcy and I want to reassure you that this is a manageable problem.
Fannie Mae in a recent bulletin to mortgage brokers announced changes to guidelines regarding reestablishing credit following bankruptcy. For all bankruptcy actions, the elapsed time period to reestablish credit will now be measured from the bankruptcy discharge or dismissal date. For all bankruptcy cases, other than Chapter 13 cases, the time period to reestablish credit is four years. For Chapter 13 cases, a distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The updated policy recognizes the fact that borrowers have reestablished credit through the successful completion of a Chapter 13 plan and subsequent discharge by requiring only a two-year time period to elapse. A borrower who was unable to complete the Chapter 13 plan and received a dismissal, however, will be held to a four-year time period for reestablishing credit. The short answer is that it will take two to four years following completion of the bankruptcy to reestablish credit and obtain mortgage financing from Fannie Mae to purchase a home.
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