FAQ: Getting a Mortgage after Filing for Bankruptcy

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Understandably, the biggest concern that many people have about filing for bankruptcy is how it may hinder their ability to get a mortgage in the future.

To provide clarity and reduce anxieties that are based on myths and misinformation — and unfortunately there is a great deal of both floating around the web — below we answer some frequently asked questions about getting a mortgage after bankruptcy:

Question: “Do I need to wait until a bankruptcy filing is removed from my credit score before I get a mortgage?”

Answer: No, you do not. If your bankruptcy was caused by reason(s) beyond your control, then you should be able to apply for a mortgage two years after discharge. If your bankruptcy was the result of financial mismanagement on your part, then you will be able to apply for a mortgage four years after discharge.

Question: “Does a bankruptcy filing make me ineligible for federal housing loan programs?”

Answer: No, your eligibility is not affected. However, you will have to abide the required waiting period. For example, if you wish to apply for a Federal Housing Authority (FHA) loan, then you will need to wait two years after discharge. Or if you wish to apply for a United States Department of Agriculture (USDA) loan, the waiting period is three years (for chapter 7 filings) and one year (for chapter 13 filings).

Question: “Are there any exceptions to the two-year post-discharge waiting period before applying for an FHA loan?”

Answer: Yes, there is. You may be able to apply for an FHA loan less than two years after discharge if you meet two conditions: 1) your bankruptcy was not the result of financial mismanagement on your part (e.g. you were forced to cover excessive medical bills or major home repairs after a natural disaster); 2) since filing for bankruptcy, you have behaved in a financially responsible and prudent manner.

Question: “Will conventional lenders make me pay more for a mortgage based on my bankruptcy filing?”

Answer: This depends. Conventional lenders (a.k.a. private lenders) rely on a variety of factors to determine lending rates, including — but not exclusively — credit scores and bankruptcy filings. With this being said, all lenders (banks and private organizations) are governed by Federal and State guidelines that forbid predatory lending practices, discrimination, and other transgressions.

Generally speaking, if you pay less than a 20% down payment on your home, then you’ll be required to pay mortgage insurance (contrary to what some people believe, the government does not insure private conventional mortgages). However, once you have 20% equity in your home, the insurance payment should drop or be eliminated.

Learn More

To learn more about getting a mortgage after bankruptcy, contact the Law Office of Charles Huber today. We have over 30 years of experience filing consumer bankruptcy cases. Our experience is your advantage!

3 Things NOT to Do When Preparing to File for Bankruptcy

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Knowing what you should do in the months, weeks and days ahead of a bankruptcy filing is important. But in a sense, knowing what you should NOT do is even more important — because making mistakes, following the wrong advice, or deliberately trying to cut a corner or two are disasters waiting to happen.

To avoid that very costly and stressful fate, here are 3 things you should NOT do when preparing to file for bankruptcy:

  1. Start paying back family and friends.
  2. It may seem like paying back family and friends is the ethical thing to do — or maybe, just the wise thing to do, since at least creditors don’t sit across from you at the dinner table or show up at family reunions!

    However, the court is almost certainly going to take a dim view of this practice. In their eyes, it’s not up to debtors to prioritize who gets paid back in what order, and how much. That is up to the court, as represented by the trustee. If the trustee deems that any monies paid to select creditors in advance of your bankruptcy filing are deemed “preferential transfers,” then those funds may be reclaimed. Try explaining that around the dinner table or at a family reunion!

  3. Max out on credit cards.
  4. Some people who specialize in doling out advice on things they know staggering little about — and of course, who are never held accountable when their guidance turns out to be catastrophic — may tell you to “max out your credit cards”; i.e. spend, spend, and spend some more in advance of a bankruptcy filing. After all, it’s free money, right?

    Wrong! The trustee will certainly look at your credit card statements (and bank account statements) for several months or even years prior to a bankruptcy filing, to verify that there was no excessive spending that represents a circumvention of the rules.

    With this being said, if you legitimately spent $1500 on car repairs nine months ago and plan on filing for bankruptcy next month, then this doesn’t necessarily mean that you’ll be accused of trying to pull a fast one. As long as you can justify the expense and there is no pattern to suggest that you significantly increased your spending pattern in advance of a bankruptcy filing, you should be fine.

  5. Withdraw funds from your retirement account.

Even if they plan on filing for bankruptcy, some people tap into their retirement funds to pay off their most aggressive creditors — like the IRS. This is usually a mistake, because you should be able to protect most — if not all — of your retirement funds per a bankruptcy filing.

The Bottom Line

Filing for bankruptcy is much more complex that most people realize. In addition to multiple rules that vary state to state, there are specific deadlines that must be adhered to. Mistakes along the way — accidental or by following bad advice — can be devastating.

To get the facts and counsel that you need contact the Law Office of Charles Huber today. We have over 30 years of experience filing consumer bankruptcy cases.

Chapter 7 Bankruptcy Myths Debunked: Part 3

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bankruptcyWe have already devoted two blogs (this one and this one) to the noble cause of debunking bankruptcy myths about chapter 7 bankruptcy. And while we hoped that the book was closed on this unfortunate topic, to echo the words of Michael Corleone in the Godfather III: “just when we thought we were out, they pull us back in!”

And so, while we dream of a day when bankruptcy myths are nowhere to be found (and the people and businesses behind them are shut down or maybe even in jail), until then, let the debunking continue:

Myth #8: You can’t file for divorce while legally separated.

Fact: Spouses can indeed file for divorce while legally separated, although in some cases it may be beneficial to file jointly. Typically, any debts that are incurred after the separation starts is the responsibility of each respective spouse.

It’s also very important for people to realize that if their spouse for bankruptcy and they do not, then creditors may come after them and leave their spouse alone, even if the debt was incurred by both parties.

To learn more about this complex issue, read our article here.

Myth #9: You can only file for bankruptcy once in your lifetime.

Fact: Unless the courts declare otherwise — which they will only do so when an individual is deemed to have broken the law or committed a severe breach of bankruptcy rules — there is no limit to the number of times that an adult individual can declare bankruptcy in their lifetime.

With this in mind, there is a minimum amount of time that must pass before filers can re-file. Currently, the timeframes are:

  • Chapter 7 filing to chapter 7 filing: 8 years from the previous date of filing.
  • Chapter 13 filing to chapter 13 filing: 2 years from the previous date of filing.
  • Chapter 7 filing to chapter 13 filing: 4 years from the previous date of filing.
  • Chapter 13 filing to chapter 7 filing: 6 years from the previous date of filing.

To learn more about timeframes and rules, read our article here.

Myth #10: It’s fine to “fudge the numbers” a little on a bankruptcy filing, or deliberately leave out an asset.

Fact: Deliberately submitting incorrect information, or withholding information, on a bankruptcy filing is against the law and will result in extremely severe penalties. Don’t do it. Ever!

With this being said, the courts understand that honest makes happen. For example, sometimes individuals legitimately forget an old debt, or they’re unaware that their debt has been sold by one creditor to another (this happens quite often, and creditors sometimes forget to send a letter announcing the transfer). Once these oversights are brought to light, individuals are expected to provide an explanation. If it is reasonable, the court will typically not impose any punishment — through it may administer a stern warning.

To learn more about the terrible things that happen to people who lie on their bankruptcy filing, read our article here.

We’re Here to Help

To get the accurate facts about bankruptcy you need — and avoid costly and potentially catastrophic myths — contact the Law Office of Charles H. Huber today. We have been helping individuals file consumer bankruptcy cases for more than three decades. Our experience is your advantage!

The Basic Facts of Filing for Chapter 7 Bankruptcy While Separated

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Whether temporary or leading to divorce, separation can be an emotionally traumatic experience. Indeed, even in so-called “good breakups” (which some people consider a contradiction in terms) can cause wounds that can only be healed with time, support, and possibly the assistance of a qualified mental health professional like a psychologist, psychiatrist, therapist or counselor.

However, it is less well-known that separation can — and often does — impose a major financial burden as well. Unfortunately, creditors frankly do not care and have zero compassion when it comes to this very common scenario. They demand payment, and will not pause their aggressive collection efforts — including filing lawsuits — because a debtor is going through a very difficult time in their relationship or family.

If you are facing this difficult situation, then filing for chapter 7 bankruptcy might be in your best financial interest. Here are some basic facts that will help you decide if contacting a bankruptcy attorney for a closer look at your options is a worthwhile next step:

  • Contrary to what many people believe, individuals can indeed file for bankruptcy while legally separated. They do not need to file jointly (although in some cases it may be beneficial to do so).
  • Usually, any new debts that you incur after legally separating will be your responsibility (and the same applies to your spouse).
  • If you and your spouse have joint credit cards or other joint debts, then these will continue accumulating and creditors may seek to enforce the debt against the non-filing spouse. In other words: if your spouse files for bankruptcy and you do not, then creditors may come after you — and not your spouse — to pay up, even though the debt was initially incurred by both of you.
  • In the same light as the point immediately above: depending on the homestead exemption laws in your state, if your spouse files for bankruptcy and you do not, then creditors may seek to foreclose on your home in order to resolve outstanding debts that were incurred by you and your spouse.
  • If you file for bankruptcy and ultimately discharge your debts in federal court, the family court in your state may use your new (and larger) disposable income amount to reduce your alimony award if you are due to receive a monthly amount, or increase your obligation if you are due to pay a monthly amount.
  • Should You File While Separated or Wait for Divorce?

    Whether you should file for chapter 7 bankruptcy while separated, or if you should wait until you are officially divorced, is an extremely important issue to resolve — one that will have a lasting impact on your financial future for decades to come.

    The above facts are NOT intended to point in you in one direction or the other. Rather, they are meant to give you a basic understanding of the landscape. The only source that can provide you with counsel for your specific situation is an experienced bankruptcy attorney. Be advised that your family lawyer cannot (and should not) provide you with this type of financial advice, since it is not their area of specialization. Fortunately, this warning is usually a non-issue, since qualified and credible family lawyers will always refer you to a bankruptcy attorney if they believe that it is in your best interest to consult with one.

    Learn More

    To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing bankruptcy cases, and have helped numerous individuals going through the legal separation.

How Many Times Can You File for Bankruptcy?

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Unless a bankruptcy court deems otherwise (more on this below), there is no limit to the number of bankruptcy cases that an individual can file. However, where restrictions come into the picture is with respect to the length of time that must pass between filings. To make things a little more complicated, the restrictions are also based on the type of bankruptcy filing (i.e. chapter).

Currently, here are the rules:

Chapter 7 to Chapter 7

If an individual previously filed for chapter 7 bankruptcy and received a discharge, then they must wait 8 years from the date of the previous filing (not the date of discharge) before they can file again for chapter 7 bankruptcy.

Chapter 13 to Chapter 13

If an individual previously filed for chapter 13 bankruptcy and received a discharge, then they must wait 2 years from the date of the previous filing (not the date of discharge) before they can file again for chapter 13 bankruptcy. With this being said, most chapter 13 bankruptcy filings are linked to a repayment plan that lasts for 3-5 years. As such, practically speaking, most people can file for chapter 13 bankruptcy immediately after their previous chapter 13 filing closes (since for them the 2-year waiting period would have entirely passed).

Chapter 7 to Chapter 13

If an individual previously filed for chapter 7 bankruptcy and received a discharge, then they must wait 4 years from the date of the previous filing (not the date of discharge) before they can file again for chapter 13 bankruptcy. This approach (filing for chapter 7 bankruptcy and then filing for chapter 13 bankruptcy) is commonly and informally called “chapter 20 bankruptcy,” and is sometimes sought by individuals who need help paying off key debts, or have the opportunity to get caught up on missed mortgage and/or car payments.

Chapter 13 to Chapter 7

If an individual previously filed for chapter 13 bankruptcy and received a discharge, then they must wait 6 years from the date of the previous filing (not the date of discharge) before they can file for chapter 7 bankruptcy. However, the 6-year waiting period does not apply if during the chapter 13 proceedings the individual paid back all of their unsecured debts, or they paid back at least 70 percent of their unsecured debts and their repayment plan was deemed by the court to be proposed in good faith and executed with the best of intentions and efforts.

Extensions to the Waiting Period

As noted above, the court may extend the amount of time that an individual must wait before filing a new bankruptcy case. This is referred to as dismissing a case with prejudice (as opposed to dismissing a case without prejudice, in which case there would be no additional filing restrictions).

The court may dismiss a case with prejudice if it deems that an individual:

Willfully failed to obey court orders. Filed multiple bankruptcy cases in an attempt to delay creditors. Attempted (regardless of success) to abuse the bankruptcy system. Committed (or attempting to commit) bankruptcy fraud by hiding assets or lying in any of their submissions or statements.

In cases that involve severe transgressions, the court can permanently ban an individual from discharging debts that were earmarked for discharge in a case that was dismissed with prejudice.

For example, if $10,000 in medical debt was going to be discharged per a chapter 7 bankruptcy filing, but the court later discovered that the individual filing the case knowingly hid assets in order to prevent them from being liquidated by the trustee, then that $10,000 in medical debt could be blocked from being discharged in any future bankruptcy filing. The individual would therefore have to pay it either by settling in some way with the creditor, or by obeying a court order per a civil lawsuit filed by the creditor.

Learn More

To learn more about bankruptcy filing rules and for a clear picture of all available options that are at your disposal, contact the Law Office of Charles H. Huber. We have over 30 years of experience filing bankruptcy cases.