debt

Bankruptcy timeline: Rebuilding credit

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.

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