Kentucky residents that have filed for bankruptcy may wonder whether they can become homeowners later. It can be difficult for a person who has previously discharged a home loan to find a lender willing to provide a mortgage. Chapter 7 bankruptcy is the most common type. All of a consumer’s unsecured debts are discharged, which means that the debt is canceled and the person is no longer obligated to repay the money. Commonly discharged unsecured debts include credit cards, installment loans and personal loans.
Secured debts are treated differently because each loan is supported by a lien on collateral. The most common example is a mortgage, where the bank retains a lien on the house until the loan is paid. When a consumer lists a home secured by a mortgage as part of a bankruptcy, the lender will usually foreclose on the property. Typically, banks will not give mortgages for two years after a Chapter 7 bankruptcy is discharged. If the property was foreclosed, a person usually cannot get a traditional loan for seven years or a federally-backed loan for three years.
To get a loan down the road, first, a person must reestablish a good credit history and seek to improve the credit rating. Then, it may be necessary to show lenders extenuating circumstances that led to the bankruptcy and foreclosure, such as extended illness or the death of the primary wage earner. It may also be necessary to produce evidence of the foreclosure date to show how much time has passed.
A lawyer may be able to help consumers review their financial situations and discuss alternatives to bankruptcy. When a client decides to file, a lawyer can help prepare the paperwork.
Source: newsnet5, “Had a bankruptcy? Here’s how to get a mortgage“, Scott Sheldon, May 07, 2014