If I File Bankruptcy, Can I Buy a House?

According to many metrics, 2021 is a good time to buy a house. For example, mortgage rates recently hit an all-time low. The buyer’s market is expected to continue for much of 2021. At the same time, however, many people are going through severe financial stress, especially people who lost their jobs during a coronavirus shutdown. These individuals should at least consider filing bankruptcy before their financial situations worsen.

Contrary to popular myth, filing bankruptcy does not torpedo your ability to buy a home. In fact, a Chicago bankruptcy lawyer might be able to help you buy a house before your bankruptcy is even discharged. So, there is no reason to delay the benefits of a Chapter 13 bankruptcy, such as the Automatic Stay and five-year protected repayment period. The Automatic Stay stops wage garnishment and other adverse creditor actions. The protected repayment period gives debtors the time they need to gradually erase secured debt delinquency, using income-based repayment plans.

Buying a Home During Bankruptcy

It is difficult, but not impossible, to buy a house while in Chapter 13 bankruptcy. Debtors must have court approval before they borrow more money. This approval is not easy to obtain.

These debtors must take care of all nuts and bolts before they file a motion to incur additional debt. The home must be selected, the financing must be in place, and the contract must be ready to sign. Then, the debtor may ask the court for permission to borrow money.

There are two big issues. First, the trustee (person who oversees the bankruptcy for the judge) often asks questions. Many trustees want to know where debtors got the money for a down payment and how they will fit the payments into their monthly budgets. Second, many creditors object, citing similar concerns. Essentially, creditors normally argue that if the debtor has more money, that money should go to paying down debts, and not to a new home.

One option in these situations is paying off the bankruptcy early. The trustee usually does not question this move, as long as the debtor has paid all allowed claims. Creditors sometimes object, but these objections are much easier to overcome.

Another option is converting to Chapter 7. That conversion normally ends court supervision within a few months. Then, debtors may borrow money without asking permission.390

Buying a Home After Bankruptcy

There are no hard-and-fast rules in these areas. However, most banks impose mandatory waiting periods, largely depending on the nature of the bankruptcy and the type of loan sought.

• Former Chapter 7 debtors must wait between two and four years, and
• Former Chapter 13 debtors normally must wait between one and three years.

That’s assuming the debtor qualifies for a mortgage. A Chicago bankruptcy lawyer can help in this area.

Acquiring new debt, like a credit card, is one of the fastest ways to rebuild your credit score after bankruptcy. An attorney can connect former debtors with banks that work with people who have damaged credit. If you charge something every month and pay off the balance every month, your credit score will rise quickly. 

Connect with Dedicated Lawyers

You can buy a house during or after bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Illinois and Indiana.

Resource:

fool.com/the-ascent/mortgages/articles/mortgage-rates-hit-a-new-record-low-in-january/