Foreclosure and Chapter 7 Bankruptcy.
October 12, 2006
There are two types of individual bankruptcies: Chapter 7 and Chapter 13. For those with enough money in their budget, a Chapter 13 repayment plan will allow them to save their homes from foreclosure. For those without the ability to afford a repayment plan, Chapter 7 provides a very good alternative. Unfortunately, many individuals and families contemplating bankruptcy are scared off by the fact that a foreclosure will be part of the process. As a result, they delay their filing longer than is advisable and end up filing on an emergency basis to stop a wage or bank account garnishment.
If you are one of these people, your nervousness is often exacerbated by high-pressure sales tactics from real estate agents attempting to convince you that you will never again be able to buy a house after the foreclosure. If there is no equity in your home, or if the payments are too high for you to make them, a Chapter 7 liquidation makes sense. It allows you to get a fresh start and breathe more easily. And regardless of what a realtor says, a bankruptcy filing does not prevent you from buying a home again. Quite the opposite, in fact.
The key to getting a home after the bankruptcy process is your credit score. You MUST rehabilitate your credit, if you plan to finance anything after the ten years following your bankruptcy or foreclosure. Always keep in mind that real estate agents only get paid when they sell a home. As long as the sale is complete, they are happy. The fact that you are not making any money on the deal or may even be losing money is irrelevant to whether or not they get paid.
Even if your home has been the subject of a foreclosure, you can get back to a good credit score within two years. The most important issue is making sure that new negative items are not showing up on your credit report after the bankruptcy is filed or after the foreclosure is complete. Bankruptcy stays on a credit report for seven to ten years, but it alone does not prevent you from getting back to a good credit score. Part of the score is based on how much unsecured debt you have. By filing for bankruptcy and discharging your debts, you may actually see your credit score go up shortly afterwards.
Another important issue to keep in mind is that it is illegal t for creditors or employers to discriminate against you based on the fact that you have sought protection under the Bankruptcy Code. Employers who do so are subject to federal law suits. That said, employers and banks can look at your credit report and make a negative decision based on the information contained in it. So, if you have many open accounts and a large amount of revolving debt, it is not illegal for them to discriminate. In these circumstances, your seeking protection under the bankruptcy code can actually save your job.
The stigma associated with bankruptcy is created by the credit industry. Keep in mind they will always protect themselves, but, at some point, you must do so as well.
