If you're considering filing for bankruptcy, you probably have endless questions on your mind. How will your bankruptcy affect your credit score? Will filing make it easier or harder for you to make ends meet? How will bankruptcy impact your life and the lives of the people who depend on you, like your children, spouse, or aging parents?
As you consider filing, one of your most pressing worries is likely how your bankruptcy will impact your current and future ability to shelter your family. The relationship between bankruptcy and your current and future living situations can be sticky, and trying to understand complicated bankruptcy legalese without a law degree is challenging at best.
Fortunately, you don't have to figure out the ins and outs of bankruptcy on your own - nor should you have to. If you're worried about how your bankruptcy will impact your current and future homeownership possibilities, keep reading. We'll talk about whether you can expect to lose your house during the bankruptcy process and how soon you can buy a new one after your bankruptcy is discharged.
Your Current Property
The main determinant in whether you'll lose your house when you file is what type of bankruptcy you file for. A lawyer can explain the more nuanced differences between chapter 7 and 13 bankruptcy to you in more depth, but in general, they differ in the following ways:
- Chapter 7 bankruptcy is meant to help people with little to no extra income get rid of their primary debts.
- Chapter 13 bankruptcy helps people who still have some extra income restructure their debts so they can pay them back a little at a time.
If you have a current house payment and want to keep your house, filing for chapter 13 bankruptcy may help you stay in your home by restructuring your mortgage payments. If you file for chapter 7 bankruptcy, your nonexempt property-which could include your house-might be sold by your bankruptcy trustee to pay back your debts.
Chapter 7 bankruptcy might be your best bet if your mortgage payments have become an overwhelming burden and you can't see a way to keep making the same payments. In this case, your living situation might change from owning to renting as you build your credit back up and work towards buying a new home.
However, even with chapter 7 bankruptcy, you could keep your home if you aren't behind on mortgage payments. The type of bankruptcy you decide to file for effects your future in a huge way, so don't rush into a decision about which type of bankruptcy will work for you.
Your Future Property
Filing for bankruptcy shouldn't destroy your financial future. Instead, it should give you a clean slate that helps you start out a new life on a new foot, which includes investing in real estate in the future.
The two different types of bankruptcy have different restrictions on how long you have to wait before investing in new property. After you file for chapter 7 bankruptcy, you usually can't apply for a conventional loan for four years or a VA loan for two years.
You can generally apply for a housing loan in a shorter period of time after a chapter 13 bankruptcy, though different lending institutions have different rules about time restrictions and lending after bankruptcies.
No matter which type of bankruptcy you ultimately file for, bear in mind that bankruptcy dramatically lowers your credit score. All lenders check your credit score to determine whether you're a safe person to lend to and, if so, how high your interest rate should be set at. No matter which type of bankruptcy you file for, bear in mind that you may need to wait longer than you'd like to rebuild your credit score before applying for a loan.
Work With a Lawyer
Still unsure about your current home and how bankruptcy affects your future? Talk with a professional. If you're in Alabama, Reynolds Law Firm is here to help. Reach out today to discuss your home and other assets in your upcoming bankruptcy.