A personal bankruptcy filing is one of the most serious and long-lasting blemishes that can appear on a credit report. Bankruptcy can bring a person’s credit score down by more than 200 points. In cases involving Chapter 7 proceedings, the record of the bankruptcy discharge may remain visible to outside parties on a credit report for longer than most other credit issues.
Many people have heard inaccurate information about personal bankruptcy. Some people claim that those who file for bankruptcy cannot qualify for mortgages. Is it true that the need to file for bankruptcy effectively ends the possibility of homeownership?
Bankruptcy limits mortgage eligibility
People who already have mortgages can often renegotiate them or bring them out of arrears due to a successful bankruptcy filing. People who are not yet homeowners may be temporarily unable to acquire a mortgage after they receive a discharge.
However, the discharge has a diminishing impact on creditworthiness over time. Even those seeking federally-backed mortgages are eligible for consideration once two years have passed since the date of their bankruptcy discharge. In many cases, people can qualify for competitive mortgage terms within a decade of their bankruptcy discharge, possibly even sooner than that.
Bankruptcy may actually make it easier to secure a mortgage by eliminating credit issues that might drag down a person’s credit score and affect their budget indefinitely without bankruptcy protections. It can also take pressure off of a person’s budget, making it easier to remain in good standing on a mortgage after securing one.
Those concerned about their current financial challenges may want to discuss those issues and their long-term plans with a bankruptcy lawyer. Attorneys can help people evaluate their options and manage the bankruptcy process to minimize the long-term consequences of filing.