There are many different reasons that people give for delaying a bankruptcy filing. Some people worry about the social stigma if their friends or coworkers find out about the bankruptcy. Many others worry about the long-term credit implications of a bankruptcy filing.
People usually face the immediate closure of revolving lines of credit as soon as they file their initial bankruptcy paperwork. They may also have limited credit opportunities available to them after a discharge.
After all, lenders typically want to see that borrowers have a history of making payments on time and using credit responsibly. Those who might benefit from bankruptcy may put off filing or refuse to file because they dream of homeownership or know they need to sell their home and move somewhere else eventually.
Is it possible for those who file for bankruptcy to obtain a mortgage after their discharge?
Bankruptcy is a temporary credit blemish
Some people mistakenly assume that because bankruptcy offers permanent relief from debt in the form of a discharge, they may face permanent credit consequences afterward. However, the credit bureaus can only report the record of the bankruptcy for a set amount of time.
After a Chapter 13 bankruptcy, the record of the discharge should only turn up on a credit report for seven years. The credit reporting rules are different for other forms of bankruptcy. However, Chapter 13 cases are subject to the seven-year reporting rules that apply to any other debt or credit issue.
Seven years after the completion of the bankruptcy, potential mortgage lenders can no longer see the bankruptcy when checking the filer’s credit report. Most people don’t have to wait a full seven years after a Chapter 13 bankruptcy to qualify for a mortgage again.
Those who start rebuilding their credit in earnest after their discharge may be able to obtain a mortgage in as little as two to three years after completing the bankruptcy process. The longer they work to rebuild their credit, the less of an impact the record of the bankruptcy may have on their credit opportunities.
Financing a home purchase with a mortgage is an option for those who successfully complete Chapter 13 bankruptcy. Those who know what happens after a bankruptcy may feel more comfortable seeking financial relief through the courts.