If you have bankruptcy on your record, it may feel like you won’t ever be able to achieve financial normality. However, that isn’t the case.
Bankruptcy often appears to result in permanent and irreparable damage to one’s finances, making it impossible to complete large purchases. Many people are unsure whether they can buy a home after filing for bankruptcy.
Fortunately, a skilled Palm Springs attorney can help you determine the best way to purchase a piece of property after experiencing Chapter 7 Bankruptcy.
What is Chapter 7 bankruptcy?
There are multiple types of bankruptcy. Chapter 7 bankruptcy is also known as a "straight bankruptcy." This is a process through which an individual's non-exempt assets are sold to pay their creditors.
A Chapter 7 bankruptcy begins when the person files a petition with the bankruptcy court. The individual must then attend a meeting with their creditors. At this meeting, they’re questioned about their financial situation and the assets they possess.
The bankruptcy court assigns a trustee to supervise the sale of the person’s property and assets. The proceeds from the sale are used to pay off the bankrupt individual’s debts. If there are any remaining funds, they’re returned to the individual.
In most cases, a Chapter 7 bankruptcy results in the discharge of the person’s unsecured debts. Examples of this type of debt include credit card balances and medical bills.
However, certain types of debts cannot be settled through a Chapter 7 bankruptcy. Examples include:
- Student loan debt
- Unpaid back taxes
- Child support
Not all assets may be eligible for sale through this type of bankruptcy. For instance, the person’s primary place of residence and vehicle may not be sold off.
Bankruptcy offers a way for people to achieve a fresh financial start by wiping their debts clean. Although Chapter 7 bankruptcy can provide relief from debt, it also negatively impacts the filer’s credit score.
Buying a Home After Chapter 7 Bankruptcy
Mortgage lenders understand the need for bankruptcy in many cases. Often, bankruptcy is the result of factors outside the person’s control.
After a certain waiting period elapses, the individual who filed for Chapter 7 bankruptcy can be approved for a home loan. Typically, the waiting period for buying a home after bankruptcy is between two and four years.
Different kinds of mortgages require different waiting periods after your Chapter 7 was filed. Some examples include:
- Conventional home loans — four years
- USDA loans — three years
- VA loans — two years
- FHA loans — two years
While these waiting periods are standard, some factors may reduce the time you must wait to apply. You might be able to secure a mortgage sooner if your bankruptcy was the result of any of the following extenuating circumstances:
- Loss of income from professional termination
- Loss of income from a divorce
- Significant medical bills and debt
With the help of an attorney, you may be able to provide evidence of the extenuating circumstances that led to your Chapter 7 bankruptcy. Proving your financial difficulty was the result of factors outside your control can reduce the typical waiting period by up to half.
Once the relevant waiting period has elapsed, you can apply for a home loan. You may get the mortgage, provided you meet the standard financial criteria for the loan.
Contact a Skilled Bankruptcy Attorney in Palm Springs, CA
When you need guidance about purchasing a home following financial difficulties, reach out to an accomplished bankruptcy lawyer at Heritage Legal, PC. Our firm provides a wide range of legal services to clients in Palm Springs. Contact our office today for a free consultation.