After Filing Chapter 7: When Can I Buy a House?

Bankruptcy filings are tough decisions to make, both financially and emotionally. Most of us are too proud to admit we can't pay our debts, and we're also unsure of the long-term effects on our credit and our lives. And most of us will be eager to return to our normal lives as soon as possible after filing bankruptcy.

Chapter 7 bankruptcy can help relieve your debt burden now, but how long will that bankruptcy filing hamper your ability to buy a home in the future? Here's a look.

This Old House

If you own a home or are paying off a mortgage when you file for Chapter 7, you may be able to keep the home after filing and it will generally depend on how much equity you have in the home and whether you can afford your mortgage payments. Equity is defined as the market value of your house minus the balance on your mortgages or home equity loans. If you have little or negative equity in your house, it may be exempt and need not be sold in the bankruptcy process. But if you have equity in your home over the exemption limit, you may be forced to sell your house to pay your debt.

If you keep your home, obviously you'll need to be able to keep making mortgage payments. On the one hand, maybe once you're free the rest of your debt you will be able to afford the mortgage payments more easily. On the other hand, bankruptcy may give you a unique opportunity to just walk away from the house and mortgage with no additional consequences if you are struggling to afford the mortgage payments.

The New Home

Buying a house after filing Chapter 7 isn't impossible, but it may take some time. As an initial matter, your filing will likely need to be completed before any large purchases can be made. It will take time to meet with the bankruptcy court-appointed trustee, allow creditors to respond to your case, and address the elimination of the debts. In all, you could be looking at 120 days from the date you file to when your case is closed. While it may only take about 3-6 months to complete the bankruptcy process under Chapter 7, a Chapter 7 bankruptcy can remain on your credit report for up to 10 years.

Rebuilding your credit could take time as well. Filing for Chapter 7 does not immediately eliminate all of your debt — it merely halts collection activities from certain creditors. And unless you have cash on hand to purchase the house outright, lenders may be wary of a borrower who just filed for bankruptcy. So putting together a few months or years of solid credit may be the only way to get a home loan.

While it's not impossible to buy a house after filing Chapter 7 bankruptcy, it may take a little more time and require you to jump through a few more legal and financial hoops. To see how filing for Chapter 7 bankruptcy will affect your credit, talk to an experienced bankruptcy attorney.

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