Almost everyone who files a bankruptcy will ask the question as to how the filing of a bankruptcy affects future credit. In many cases, if a person’s credit is bad at the time of the bankruptcy filing because of missed payments, foreclosures, sheriff sales, repossessions and lawsuits, their credit is actually better after the bankruptcy has been discharged, approximately five months after the initial filing.
The reason for this is because another bankruptcy cannot be filed under Chapter 7 and another discharge cannot be granted for eight years. In addition, the person no longer has any debt to re-pay since the unsecured creditors have all been eliminated and many creditors consider the person to be a better risk after the bankruptcy has been discharged. This leads to the ability to finance a vehicle approximately five months after the Bankruptcy has been filed and the final discharge is granted. It also allows people to obtain some credit cards at this point also. The credit card companies may start with a low limit but it is possible to obtain credit as soon as the bankruptcy discharge has been entered.
This brings us to the question of financing a house and obtaining a mortgage. For years, it appeared that most banks would not even consider approving a mortgage loan for someone who had filed bankruptcy until they had been out of bankruptcy for at least two or three years. This is now beginning to change. According to a recent article in the Pittsburgh Post-Gazette , the U.S. Department of Housing and Urban Development, which guarantees a significant number of mortgages in this country, has indicated they will approve mortgages for people who have filed bankruptcy just one year after it has been discharged.
Many of the banks surveyed stated they will still wait the two or three years before approving a mortgage, but it is certainly a major change for the United States Government that backs so many of the mortgages in this country to actually change their policy and allow people to obtain mortgages just one year after the bankruptcy filing. We can hope that after this program gets started and mortgages are being granted after one year that more and more of the banks, loan companies and credit unions will follow suit and also allow the approval of mortgage loan applications just one year following a bankruptcy filing.