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Will bankruptcy affect my ability to buy a house down the line?

On Behalf of | Jan 20, 2021 | Bankruptcy

If you are one of the many Georgia residents struggling to meet their debt obligations right now, your life is probably pretty stressful at the moment. You may feel underwater and unable to breathe. It is normal to feel this way, especially if everything you try to improve your situation fails you. You’ve considered bankruptcy, but you have concerns about how it may affect your ability to reach your future goals, such as buying a house. The good news is that bankruptcy may not prevent you from reaching your goals.

To be clear, bankruptcy does have the ability to grant you immediate financial relief, but it can also do some damage to your credit score. However, this damage to your credit is only temporary. In time and with hard work, your credit score can improve, and bankruptcy will eventually fall off your credit profile.

Two types of bankruptcy

If you are looking at your bankruptcy options as a consumer, you have two — Chapter 7 and Chapter 13. Chapter 7 involves liquidating some of your assets and results in the immediate and complete discharge of certain debts. Chapter 13 is a repayment plan, in which you will create a payment schedule that your creditors must agree to and then follow that plan for three to five years, at which point you should have paid your obligations, and any remaining debts may qualify for discharge.

How long after bankruptcy can you buy a house?

If you pursue a Chapter 7 bankruptcy, there is a two to four year waiting period before you can apply for a mortgage. The exact length of the waiting period depends on the type of loan for which you wish to apply. If you pursue a Chapter 13 bankruptcy:

  • The waiting period is one year from your bankruptcy filing date for FHA, USDA and VA mortgages.
  • The waiting period may be two to four years after bankruptcy dismissal or discharge for conventional mortgages.
  • A lender may waive the waiting period if you’ve been making on-time payments for 12 months.

In short, those who pursue Chapter 13 bankruptcy may obtain a mortgage sooner after filing for bankruptcy than those who file for Chapter 7 relief.

The bottom line

If you want to buy a house after bankruptcy, it is possible to do so. It all comes down to hard work and timing. Legal counsel will have the ability to expand on this topic as well as explain the advantages and disadvantages of each type of bankruptcy so you can make the best decision for your current financial needs and future goals.