Tips for Buying a House After Filing Bankruptcy

Consumer bankruptcy gives distressed debtors a fresh financial start. Debtors who return to the starting line should be able to take advantage of favorable market conditions, such as low mortgage rates.

During 2024, observers expect already low rates to drop by an additional 1 percent, down to an average of 5.75 percent. For a $200,000 mortgage, that reduction translates to a savings of about $200 per month, or $68,000 over the life of a loan. Falling prices in many areas, including Illinois, might mean even more savings.

Former bankruptcy debtors with damaged credit won’t be eligible for the lowest rates. But they will be eligible for considerable savings. So, 2024 might be the year to buy a house, especially if you’ve already set aside money for a down payment.

Large sums of cash are usually subject to liquidation in a Chapter 7 or Chapter 13 bankruptcy. However, a Chicago bankruptcy lawyer often uses legal loopholes to protect such money, so families can maximize their fresh financial starts.

During Chapter 13

Normally, Chapter 13 bankruptcies last between three and five years. During bankruptcy, the trustee (people who manage bankruptcies for judges) closely supervise the debtor’s finances and often prohibit major purchases. However, the world doesn’t stop turning while the bankruptcy is active.  In many cases, a Chicago bankruptcy lawyer can convince a judge to approve a major purchase, even a home purchase.

We should pause here and examine the bankruptcy/mortgage waiting period, which is usually seven years, depending on the down payment amount, type of loan, type of bankruptcy, and a few other factors.

However, this waiting period is a guideline and not a hard-and-fast financial rule. It’s certainly not a legal requirement. More than likely, some bank, somewhere, is willing to lend money to people who are in bankruptcy.

Usually, the court approves the purchase, often over the objections of creditors, if the proposal meets the following requirements:

• Reasonable Need: People need new housing if their current housing situation is inadequate, perhaps because their residence is too old or their jobs transferred them out of town. The new house is reasonable if it’s substantially similar to the old house or is minimally adequate to meet the family’s needs.
• Proper Foundation: Judges don’t approve large purchases based on reasonable need alone. Debtors must provide nuts and bolts information, such as the loan term, interest rate, down payment, and monthly payment. A dummy sales contract usually does the trick.
• Payment Ability: Chapter 13 debtors must have sufficient income to make the new (or preferably substitute) mortgage payment and still have enough left over to make their debt consolidation payments every month.

Creditors usually object based on that third bullet. They argue that, based on the bankruptcy paperwork on file, the debtor cannot make the monthly payments. If the debtor got a second job to assist in this area, the debtor must amend Schedule I.

Creditors may also argue that the extra money should go to a larger debt consolidation payment instead of a mortgage. Judges typically overrule these objections if the motion to purchase is in order and the current repayment plan meets minimum legal requirements.

Following Chapter 7

Motions for purchases are very rare in Chapter 7s. Since these bankruptcies last less than a year, at least in most cases, waiting until court supervision ends is a viable option.

Many lenders don’t work with recent bankruptcy debtors as a matter of policy. Don’t be discouraged and don’t take it personally. As mentioned, plenty of funding sources are available, especially if the debtor has been current on all bills for the last ninety days.

 Count on a Diligent Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Source:

cnbc.com/2024/01/21/mortgage-interest-rates-expected-to-drop-in-2024.html