Last year, there were over 1 million personal bankruptcy filings, directly affecting over 2 million people. Obviously, if you are one of those whose situation has or will force them to file, you aren’t alone.
There are 2 types of personal bankruptcy filings, Chapter 7 and 13. With Chapter 7, all debts are forgiven, but all assets that are not owned outright (including your home, if there is no longer equity) are sold to repay the dept. With Chapter 13, some debts are forgiven and others are part of a 3-5 year payment plan.
Get A More Attractive Loan Structure With A Post Bankruptcy Home Refinance.
You may think that because your credit has been sourced by the bankruptcy, you won’t be able to find a lender or qualify. There are lenders who are willing to do a post bankruptcy home refinance, but not usually until after 2 years. This 2 year period is actually a blessing in disguise, because during this time, you can follow some simple disciplined steps that will maked you a more attractive applicant.
Step 1 – Make all of your payments on time. Your payment history makes up 35% of your credit score. This isn’t limited to your mortgage and settlement debt. This includes your utilities, insurance, cell phones and medical bills. All of these bills are extensions of credit and most are starting to report to the 3 credit reporting agencies.
Step 2 – Continue to build your credit. Credit can be a double edge sword. Used wisely, it can help build your credit score. But, one mistake (for example, late payment) can reduce your score by 50 to 100 points. If you are going to use credit cards, use them only when you already have the money in your account to pay them off in full and have set yourself up for online payment. This way, you can pay off the debt even before your statement comes.
If you are choosing what type of credit card to use, you might want to consider a gas card. Gas is an essential expense, so you will be less likely to get carried away. Remember, carrying credit card debt is dangerous and risky and won’t necessarily help your credit score.
Step 3 – Review your credit report every 4-6 months. You are entitled to a free credit report from each of the 3 reporting agencies each year. You may order your reports directly from Experian, Transunion and Equifax. Make sure that all of your payments are being reflected accurately. Immediately address any errors. Keep great records of your payments, just in case there is any discrepancy.
Step 4 – Save. Set a savings plan and stick to it. It’s important to show that you are consistently saving something each paycheck. To help you meet your goal, have your check directly deposited – a portion into your checking account and a portion into your savings account. This will prove to a mortgage lender that you are committed, have a plan in place and are building capital for an emergency.
Step 5 – Keep your current job. The number one reason that you’ll get approved for a loan is because you have the ability to repay the debt. This means that you need to have consistent income to cover all payments. Creditors, such as mortgage lenders like to see long term, steady empolyment with consistent income.
Following these 5 steps should help you rebuild your finances and appeal to a mortgage lender specializing in post bankruptcy home refinance.
Best of luck!