Can I Get a Home Loan After Chapter 7 Bankruptcy?
If you file for bankruptcy, it stays on your credit report for 10 years. Nonetheless, filing for Chapter 7 -- sometimes called a liquidation bankruptcy -- doesn't prevent you getting credit for a mortgage. In some cases, you may be able to qualify for a mortgage with reasonable interest rates within as little as one or two years after your discharge.
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Chapter 7
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To qualify for Chapter 7, your income for the six months before filing must be below the median for your state. Alternatively, you can pass a "means" test that adjusts your income based on your expenses. The bankruptcy court sells off your assets to pay your creditors, though your state's law may exempt some of your assets. After your assets are liquidated, many of your remaining debts are discharged. You still have to pay off child support, recent back taxes and some other kinds of debt, however.
Credit
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Start working on rebuilding your credit as soon as you emerge from Chapter 7, Liz Pulliam Weston reports on MSN Money Central. Even with a bankruptcy on your credit report, you can rebuild your credit rating with simple steps. For example, make sure you pay your bills on time, something that should be easier now that you have less debt. Apply for a secured credit card -- one backed by your bank account -- and use it regularly. Make timely payments on any debts that survived your bankruptcy.
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Mortgages
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Some mortgage lenders specialize in borrowers who've emerged from bankruptcy: The rates will be high because of the presumed higher risk, but these lenders won't be deterred by a Chapter 7. If you want a better rate, the McDonald law firm states on its website, try obtaining mortgage insurance from the Federal Housing Administration (FHA). If you can show you've been handling debt well, the FHA may consider insuring your loan within two years after your discharge -- perhaps even within one year if you can show the bankruptcy wasn't your fault and isn't likely to happen again.
Responsibility
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After your discharge, it will be several years before you can file bankruptcy again, so maintain control of your debt. The important issue isn't how soon a lender will approve you for a mortgage loan, but how soon you're able to handle one. Before taking out a mortgage, make sure you've corrected any poor spending habits that contributed to your bankruptcy. You should also have confidence your income is steady and that you can handle the down payment for the mortgage without much trouble.
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