Can I Get a Real Estate Loan After Chapter 13 Bankruptcy?
Bankruptcy is a significant financial step that has an impact on all your current financial transactions, as well as your future transactions for years to come. If you are planning to file for bankruptcy, carefully consider your plans and alternatives. If you want to buy property soon after filing, bankruptcy will make it very difficult. It is best to plan to stay in one place for some time after the bankruptcy before trying to get a new mortgage of any kind.
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Chapter 13
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Chapter 13 bankruptcy is not as harsh a process as Chapter 7. Debtors are assigned a trustee by the court. The trustee's primary task is to create a repayment plan that allows the debtor to partially repay debts over a period, typically three to five years. After the repayment period, any remaining debts are forgiven.
Waiting Period
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Chapter 13 bankruptcies show up on all credit reports and have a negative effect on credit scores. As a general rule, debtors should wait at least two years before trying to get mortgages. Mortgages are large loans and lenders are very unlikely to approve a home loan application soon after a bankruptcy. Two years is enough time to build credit up again.
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New Debt Approval
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The Chapter 13 repayment lasts a specific period, up to five years. After the plan is finished and the court has discharged any remaining debt, the court is no longer involved in the debtor's finances and the debtor can apply for a new loan. However, if the debtor wants to get a new real estate loan after the bankruptcy filing has been accepted but before the repayment plan ends, she must receive permission from the court. Getting court approval can take between 30 and 45 days, so borrowers should expect a delay in their mortgage application if they apply during this time period.
Credit Report Effects
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A Chapter 13 bankruptcy stays on a credit report for seven years. Even before the bankruptcy drops off the credit report, credit scores will improve over time and lenders will tend to look more favorably on the consumer.
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