How Does Bankruptcy Affect Home Buying?
In a word, it’s complicated. It all starts with the purpose of bankruptcy, which is not to punish debtors, but to give them a fresh start. Frequently, this fresh start involves a future home purchase. So, a bankruptcy filing shouldn’t adversely affect this future decision. Sometimes, the situation is different. A family is in the home-buying process when an unexpected financial storm, like a serious illness, suddenly comes from nowhere. Typically, bankruptcy doesn’t derail these plans.
Only a Chicago bankruptcy lawyer helps distressed debtors maximize their fresh starts. This effort includes support while the bankruptcy is open and support after the judge closes it. A non-lawyer bankruptcy petition preparer cannot do these things. Additionally, DIY filers are completely on their own in both situations. So, the initial investment in a Chicago bankruptcy lawyer always pays rich dividends in the long term
If, as mentioned above, everything is in place for a home sale when a debtor files bankruptcy, that sale can usually proceed. In fact, in a few cases, debtors can start the home-buying process during bankruptcy, even if that process requires a mortgage.
Legally, the proceeding is much the same, at least in a Chapter 13. The same process may be available in a Chapter 7. However, since these bankruptcies often only last a few months, it’s usually better to simply delay things until the judge closes the case.
This proceeding begins when a Chicago bankruptcy attorney files a motion to make a large purchase. This motion must include all the details about the proposed transaction, such as the sale price, interest rate, down payment, and monthly payment. Generally, sellers generate dummy contracts that attorneys attach to these motions.
In a Chapter 13, this motion usually raises two major issues. Where did the debtor get the money for a down payment and can the debtor assume the new obligation without compromising his/her ability to make the monthly debt consolidation payment.
Cashing in a retirement account or other exempt asset is a perfectly legitimate way to obtain down payment funds, even during bankruptcy. Debtors maintain full control over exempt assets and, for the most part, they may handle them as they wish. Other down payment methods are harder to legally justify.
As for the monthly payment, a Chicago bankruptcy lawyer typically files amended Schedules I and J, the monthly income/expense schedules. Frequently, debtors take second jobs or otherwise raise their incomes to make house payments in addition to debt consolidation payments.
Creditors often object to these motions, on the basis that extra income should mean a higher debt consolidation payment instead of a major purchase. However, as long as the purchase is “reasonable,” a very subjective standard, the judge usually overrules these objections.
Usually, the post-bankruptcy mortgage waiting period is two years for most government-backed mortgages and four years for most conventional loans. However, if former debtors want to qualify for mortgages, they must do more than simply wait for the clock to expire. Instead, they must take steps to raise their credit scores.
Responsible credit use is the best way to raise a credit score. Occasionally, this process comes naturally, Debtors must simply make secured debt payments on time, come hell or high water. Usually, however, former debtors must do more. Obtaining a credit card is usually a good idea. Charge something on that card every month, pay the balance off every month, and watch your credit score go up every month.
Connect With a Tough-Minded DuPage County Lawyer
No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout Chicagoland and beyond.