A common bankruptcy myth is that it takes seven (7) years after filing bankruptcy before you can get new credit. This is simply untrue. Any kind of bankruptcy can be reported on your credit for up to ten (10) years but this does not mean that you can’t obtain new credit during the ten (10) year period. In fact, most of our clients receive letters shortly after they receive their bankruptcy discharge with offers of new credit. Many automobile dealerships advertise that they will finance a car purchase following a bankruptcy discharge.
Why is this? The truth is that someone who files bankruptcy is usually much less of a credit risk after filing bankruptcy than they were before having done so. Prior to filing bankruptcy, the individual had multiple creditors. A new lender that made a loan to the individual would have to compete with other creditors in order to be paid. The new lender would also need to be concerned with a bankruptcy being filed in the near future thereby discharging all of the debt owed. Following bankruptcy, the individual is often debt free. Therefore, the new lender will not have to compete with other creditors in order to be paid. Further, if the individual filed a chapter 7 bankruptcy, she will not be able to so again for another eight (8) years. Thus the new lender will have little worry about his debt being discharged in a future bankruptcy.
But what about buying a house? How soon after filing a chapter 7 bankruptcy can you buy a new house? Our experience has been that it takes two years after your discharge in order to get a decent mortgage. You may be able to get a mortgage sooner, but your interest rate will not be as low as it would be if you wait 2 years. This is important because you will be making payments that include the higher interest rate for as long as 30 years. You can save a good bit of money if you can wait long enough after the discharge to obtain a lower interest rate.
In addition to the above information, much will depend on how you manage your finances following your bankruptcy. If you keep a particular debt (often done through a reaffirmation agreement during the bankruptcy), like a house or car payment, be certain to make the payment on a timely basis following the bankruptcy. Try to save some money so that you will be able to make a down payment. In short, your actions following the bankruptcy will have a significant bearing on your ability to buy a home.
If we can be of assistance, please let us know.
Brad Botes is a principal of each of the Bond & Botes Law Offices throughout Alabama, Mississippi, and Tennessee. He holds a Bachelor of Science from the University of North Alabama, and a Juris Doctorate from Cumberland School of Law at Samford University. He and his team of bankruptcy lawyers have spent over 30 years guiding people through financial challenges. Read his full bio here.