When someone experiences financial crisis like job loss or business failure, it becomes quite difficult for him to repay the existing loans/debts. Though filing bankruptcy may seem to be a viable option in order to get rid of the multiple debts, yet it may become difficult to qualify for a new mortgage. You should also know that your existing mortgage gets affected when you file bankruptcy.
What happens to your existing mortgage after bankruptcy filing?
When you want to declare bankruptcy, you need to file either chapter 7 or chapter 13. However, the consequences of filing chapter 7 are different from that of chapter 13. The effects on your existing mortgage after filing bankruptcy are discussed below.
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Consequences of filing Chapter 13:
You can protect your home from a foreclosure by filing chapter 13 bankruptcy; however, it is advisable that you seek help from an experienced bankruptcy lawyer. By filing chapter 13, you can work on a structured debt repayment plan, which can also take care of your monthly expenses. Usually, you need to repay your loan within 3-5 years. Chapter 13 can also give you automatic stay protection, which can prevent your creditors from suing you. It is also helpful to stop collection efforts during the repayment tenure.
Consequences of filing Chapter 7:
Sometimes filing chapter 13 can be really expensive for the homeowners. In that case, filing chapter 7 bankruptcy is favorable for them. It can free you from your personal liabilities to pay back the existing debts. However, homeowners may still be unable to keep their house after the discharge of bankruptcy.
Reaffirming mortgage debt:
If you want to save your home even after filing chapter 7 bankruptcy, then you need to file a reaffirmation agreement. Once you file the paperwork, the mortgage company may agree to work with you and also approve your plan so that you can clear the delinquent account within a specific time period. It means that you are agreeing to pay off the debt amount, which you owe to your lenders.
Paying for deficiency after foreclosure:
If your bank forecloses your property but cannot recover the unpaid debt, then you might have to pay for the deficiency.
How do you qualify for a new mortgage after bankruptcy?
Go through the following points to know how you can qualify for a mortgage even after filing bankruptcy.
1. Try to rebuild your credit - If you have some debts that you've not included while filing bankruptcy, then try to repay them on time. It will help rebuild your credit so that you can apply for new loans in 2 years of time.
2. Plan a budget and follow it - Analyze your financial status and prepare a budget. Try to follow it in order to save yourself from any more debt problems in future.
3. Try for FHA or VA mortgage loans - It is relatively easier to qualify for an FHA or a VA mortgage loan than that of conventional mortgage loans.
4. Get ready for making a down payment - You may not qualify for a zero down payment mortgage. Therefore, you may need to make a down payment in order to qualify for the mortgage.
5. Check your credit reports regularly - It is really important to check your credit reports regularly. If there are errors, then fix them immediately.
It is quite important to learn from your past mistakes. Therefore, you should not make any more mistakes that can compel you to file another bankruptcy in future. When you are taking out any loan/debt, you should carefully analyze your financial situation in order to ensure that you'll be able to make the required monthly payments on time.
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