BANKRUPTCY

A bankruptcy filing delivers a severe blow to your credit and FICO score, but it doesn’t mean you have to wait 10 years before you can qualify for a mortgage. Many consumers who have filed for bankruptcy have been able to obtain a mortgage, at standard rates, within a couple of years of the bankruptcy discharge. Here are some important steps to recover.

Bad things happen to good people. Mortgage lenders are more interested in your recovery — what you’ve done since your filing. It won’t happen overnight, but here are some to keep in mind when you inquire about a mortgage with a bankruptcy in your past:

Give explanations. No mortgage lender is going to ignore the fact that you’ve filed bankruptcy and he or she will likely want to know the cause of the filing. Your lender will be particularly interested in whether the same situation could happen again. Your chances of being qualified are much better if your bankruptcy was caused by a single event such as a loss of employment or a death in the family than if it was a result of poor judgement.  "I was young and dumb", is not a great explanation!

If the bankruptcy resulted from a single event, it may help to show your lender paperwork describing the incident, such as the layoff notice or death certificate. You will want to bring in court documents to indicate when the bankruptcy was filed. The best rates are on those loans that are available two or three years after the bankruptcy is complete.

Demonstrate good money habits now. Many people who file bankruptcy swear off credit altogether, however, it is important to re-establish your credit rating. Get a secured credit card or take on some sort of loan — furniture, a car or a major appliance — to demonstrate that you are able to make timely payments. Make sure you are making other payments (utility bills, cell phone, etc.) on time as well. You won't turn things around in a year but your credit score will improve over time. Mortgage companies are unsympathetic if you continue to have credit problems after your bankruptcy is complete.

Dispute any credit report errors. There’s no need to add to your troubled credit history with errors on your credit report. Get a copy of your credit report from each of the three major credit reporting agencies: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com. If you encounter any errors, inform the CRA in writing what information you believe to be inaccurate and request deletion or correction. Frequently, the creditor will not accurately show that the indebtedness was discharged by the Bankruptcy Court. This has the effect of leaving "open wounds" on your credit until the information is reflected correctly. You must "clear the slate" of your old debts before you can really start fresh.

Save your money. Lenders may be more willing to loan you money if you’ve saved up a considerable amount of money for a down payment. This could be as little as 3% to 5%, if you have sufficiently re-established your credit ratings.

Ask for advice:  If you have questions about how a bankruptcy has affected you, just call Jon. He'll be happy to go over the lender guidelines for bankruptcy that may apply to you. We'll be glad to help guide your steps to home ownership.