People are often afraid of filing for bankruptcy because they expect it to prohibit them from ever being able to get a loan or a mortgage. That is absolutely not true.
When lenders are assessing whether or not you are a credit risk they take many things into consideration. The big one is, of course, your credit score. If you currently have accounts in collections, judgments or tax liens, your credit score is surely suffering. Once you file a bankruptcy your credit score will take a hit but it’s a much smaller hit than someone with stellar credit.
However, what if you have a great credit score right now and you file for bankruptcy? Then what happens? Well, although you may take a larger blow to your credit score, you will be able to rebound quicker by continuing to make monthly payments on the accounts that you are still obligated to pay once your bankruptcy is behind you such as student loans and secured debts on your vehicles and your house.
After you receive a discharge in your bankruptcy you actually become a better credit risk to lenders for a number of reasons. One being that your debt-to-income ratio is much improved. Also, lenders know that you cannot file for Chapter 7 bankruptcy protection again for another eight years. They know that if you did have to file for bankruptcy protection again within that time that you would be limited to a Chapter 13 filing. In which case they are more likely to recoup some, if not all, of the money they lent you. Furthermore, bankruptcy is often a once in a lifetime event. Many people rebound from their bankruptcy and never look back again and lenders know that.
But if you main concern is the big house purchase that so many of us need financing for, in all reality bankruptcy just might be the best avenue for you to get there. Mortgagors are very strict with respect to what credit scores they will consider when giving out home loans. Bankruptcy can usually eliminate the debt that is keeping your score low. Then you can work on building your credit again through on-time payments and other proven methods. Many lenders will consider your mortgage application in as soon as two years from your bankruptcy discharge.
To truly understand whether or not bankruptcy could be the tool you need to align your credit worthiness to where it needs to be, contact Michael Sands or Aaron Wegner atSands Wegner, PLC (Husker Law) for your free initial consultation.