| Bankruptcy timeline: Rebuilding
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Purchasing a home and car
Ultimately, the time at which a bankrupt consumer can purchase a
home or a car varies from lender to lender.
Chern says it's possible for a
Chapter 7 debtor to finance a car the day after filing.
"A Chapter 13 debtor may be able to finance a
car while the repayment plan is still in effect, although the trustee's
permission is required after showing that the car is necessary to
complete the debt repayment."
Most experts say that it
will take 18 to 24 months before a bankrupt consumer, who has
re-established good credit, can secure a mortgage loan after personal
bankruptcy discharge.
Credit-impaired borrowers should
prepare to pay interest rates that are 2 points to 3 points over
conventional rates.
"Loan applicants should be wary of higher, predatory
rates that exceed that amount," says Stephanie Singer, spokeswoman
for the National Association of Realtors. "These borrowers
should also look for loans that let them refinance without penalty,
at a better rate, after they re-established their credit."
Singer suggests bankrupt consumers educate themselves
about different mortgage programs, talk with a real estate agent to help find
a lender that is right for their situations and check with the Better
Business Bureau to identify whether lenders are in good standing.
Consumers can view how their credit scores impact
the interest paid on a loan by using the loan savings calculator
on MyFICO.com, a division of Fair Isaac Corp.
Loan representatives at E-Loan, an online lender,
examine factors that include credit score, income and debt-to-income
ratio.
"Generally, consumers who filed for bankruptcy
within the past two to five years may experience an additional 50
basis points or 0.005 percent increase to the rate, compared to
someone with the same credit score who has not filed for bankruptcy,"
says Pete Bonnikson, a senior vice president at E-Loan.
The Federal Housing Administration, or FHA, which
insures residential mortgage loans -- especially first-time home
buyers and those with low-to-moderate income -- has specific procedures
for bankrupt consumers and special considerations for those who
have ended up in bankruptcy because of unfortunate circumstances
that could include serious illness or death of a wage earner.
Chapter 13 filers aren't prevented from getting an
FHA-insured mortgage if the lender documents that one year of the
payout period under the bankruptcy has passed, payments have been
made on time and the debtor has received the court's permission.
Debtors with a Chapter 7 bankruptcy discharge can
get an FHA-insured mortgage after two years if they've shown a good
payment history. However, the FHA will allow a borrower to obtain
the mortgage after one year if they can show they are responsible
with their financial affairs, the bankruptcy was caused by circumstances
beyond their control and that the circumstances are not likely to
occur again.
Bankrupt consumers whose homes were foreclosed on
or who surrendered a deed in lieu of foreclosure within the previous
three years won't be able to get a new FHA-insured mortgage. The
lender might be able to make an exception if the foreclosure resulted
from circumstances beyond the control of the borrower and the person
has re-established good credit since the foreclosure.
Credit bureau accounts marked "included in BK"
should be removed after seven years, according to TrueCredit. If
they are not removed, you can send a letter requesting the records
be taken off your report. A bankruptcy can remain on your credit
report for up to 10 years.
Next: Read "A
bankruptcy timeline" to find out what happens, and when,
for consumers facing bankruptcy.
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