Bankruptcy can have a significant impact on your credit score. This can be more than just an inconvenience; it could affect you in the future when looking to buy a house or car, get financing for college, or even get into graduate school. When you are looking at filing bankruptcy, you’ll want to think about how this will affect your ability to get a mortgage in the future.
Filing Chapter 7
In most cases, if you file for chapter 7 bankruptcy, you will be able to keep your house. This is because bankruptcy law requires that before a creditor can sue for non-payment of debt, they must first file a lawsuit and obtain a judgment in court. Here are some pros of filing a chapter 7.
Automatic Stay Protection
You won’t have to worry about eviction or foreclosure and won’t be forced to sell the house to pay off debts. This is because even though you may be filing bankruptcy, the court will issue an automatic stay that prohibits creditors from continuing to pursue actions against you and your home.
Fair Consideration of Your Credit Report
Because your mortgage lender is involved in the bankruptcy process, they cannot add anything harmful to your credit report. The lender can’t contact any of your creditors, tell them you filed for bankruptcy, or reveal any other details about your case. This is why it’s sometimes a good idea to wait a little while before filing bankruptcy because you’re making payments on your house and don’t want to risk damaging your credit score.
Treatment of Mortgages
Typically, the court will list your mortgage as an asset in the bankruptcy. It will be put into an escrow account, collecting interest until it’s paid off. This is why it’s a good idea to file bankruptcy if you have a mortgage because you can be sure that your creditor will get paid.
Reorganization of Debts
If enough of your debts are not dischargeable, you may be able to reorganize those debts to reduce your total amount owed. A debt will be worth less in bankruptcy but will be discharged. Your expenses and obligations will be combined in your bankruptcy filing, so there will be less total debt.
Filing Chapter 13
In chapter 13, you will most likely not keep your house. However, the law that creates bankruptcy also allows the court to make exceptions to the standard rule if it would be “unjust or inequitable.” In these cases, the court can create an exception to the law so that some people who filed for chapter 13 bankruptcy can keep their houses. If you are filing Chapter 13, discussing your situation with an experienced attorney is essential. Here are some things you are set to go with when you file chapter 13.
Fall of House Value
The value of your house will be reduced by the amount of debts you can pay. Lenders and debt collectors can’t use information about your bankruptcy case against you until the case is closed. Your creditors don’t know your bankruptcy has been filed or what type it is, so they can’t contact you or send non-performing debt collectors after your home.
More Time To Repay Debts
In chapter 13, you will get to keep your house. However, you will end up paying back the mortgage company over three to five years. The property is protected as long as you are making your monthly payments. If you ever miss a payment, your creditor may seize the house. This is why it is essential to act quickly when filing chapter 13.
More Expensive and More Difficult to Qualify Under New Credit Laws
The bankruptcy laws that protect you from having your debts discharged are based on a formula. This formula requires you to pay a certain amount toward unsecured debts, such as credit cards, out of every paycheck you get from work.
Derivative Property
When your house is in bankruptcy, it may not be possible to obtain credit for a car, develop a business or even graduate school. Credit checks can be done in these areas, and you may be turned down because of the bankruptcy filing. If this happens, you will have to pay for these things out of pocket, which could increase your expenses. This can also affect your credit rating.
Debt Consolidation and Home Equity Loan
Debt consolidation helps you pay your unsecured debts, including your mortgage. Some lenders will even give you a Home Equity Loan to help renovate the house. After making all your payments for three to five years, the mortgage company will release the property from bankruptcy. If this is done before the foreclosure date, it could prevent foreclosure.
If you do file, it’s also essential that you act quickly so that your creditors cannot take any action to help themselves by contacting you or showing up at your home. Some many experts and professionals will help prevent foreclosure. When dealing with foreclosure, you need to be sure you are getting the best interest rate, a lender who will foreclose on properties promptly, and a lawyer who can help you with your court case.