Bankruptcy

The Effect of Bankruptcy Or Foreclosure On Your Ability To Qualfiy For Your Next Home Mortgage

By Jonathan Alper

One of my recent clients works as a supervisor in the mortgage lending department of a national bank. Many people asked me about the impact of bankruptcy and foreclosure on their credit. I asked this client how many years does someone have to wait to get a new mortgage after either filing Chapter 7 bankruptcy or a foreclosure judgment. My client said that during the real estate boom a bankruptcy or foreclosure meant no mortgages for two years. In today?s lending environment, mortgage companies are not giving new loans to anyone who either filed bankruptcy in the past four years or who had a foreclosure judgment in the prior five years. It does not matter how much cash the debtor can invest in the new home- no mortgages are available during these periods regardless of the down payment and loan to value ratio.  She expected that these requirements will be relaxed somewhat when the real estate market stabilizes.

My client offered advice for people considering bankruptcy. The client suggested that debtors maintain after bankruptcy one or two credit cards that have low balances and for which the debtor is current on payments. If people remain current on some credit cards following bankruptcy (or foreclosure) their credit scores will rebound relatively quickly. Then, if credit loosens up as the economy recovers the people with good credit will more quickly qualify for mortgage or consumer loans.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Full post as published by Florida Bankruptcy Law on June 10, 2009 (boomark / email).