If you are considering bankruptcy as a way out of insupportable debt, you are probably trying to learn everything you can about how it will affect your life. Having a home is essential, and one of the first questions people ask their bankruptcy attorney is how the process will affect their ability to buy a house or rent an apartment. You might be surprised to learn that both buying and renting are possible, and you might be eligible sooner than you think. Can You Still Buy a House or Rent an Apartment During Bankruptcy? While it is difficult to buy or rent while your bankruptcy case is still pending, you should be able to obtain a new place to live within a few months of receiving your discharge. Bankruptcy is designed to lessen the burden of your financial obligations, not to destroy your life.While renting an apartment or buying a house might involve some extra steps after bankruptcy, it is certainly possible for the vast majority of people. Many people can rent an apartment in as little as three months after their case is resolved. Buying is usually doable after 12-48 months, depending on your situation.
How Does the Bankruptcy Process Work?
Bankruptcy is a legal process for people who wish to have a significant portion of their debt discharged when they find they are unable to pay it back. In the United States, it initiates with a court order that is often requested by the debtor. Bankruptcy stays on your record for 7 to 10 years, which is why many people worry that it will impact their ability to rent or buy property.There are two types of bankruptcy, Chapter 7 and Chapter 13. Both the type of bankruptcy you file and the circumstances surrounding your case will become significant when you look for a home post-bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is an option that is available for individuals who can pass a state-specific Means Test which confirms that their income to expenses ratio is below a certain level. Filing for this type of bankruptcy usually results in the discharge of a large portion of your debt.While you might be ordered to liquidate some assets to pay off the debt that is not discharged, possessions like your home and your car are usually protected. For people who qualify, there is no maximum amount of debt that can be discharged.
Chapter 13 Bankruptcy
The main difference between Chapter 13 bankruptcy and Chapter 7 bankruptcy is that in the case of Chapter 13, you will need to go on a payment plan to settle a percentage of your debt over time. Still, a significant amount can be discharged before you are ordered to make payments. With this type of bankruptcy, none of your possessions will be subject to liquidation.
Renting an Apartment After Bankruptcy
Bankruptcy removes a large portion of your debt, leaving you in a better position to keep up with monthly rent payments. While a landlord will probably not provide you with an apartment if you are in the middle of a bankruptcy case, resolving one can be seen in a positive way.First, you will have more disposable income to put towards rent. Second, bankruptcy law prevents people from filing multiple cases within an eight-year timeframe, meaning that your landlord can rest assured that you will not file again in the near future.
What Will a Landlord Check?
While landlords will check your bankruptcy history, there are other things they look for that can sometimes offset the impact it has on your record. They might consider:
- Your credit report
- Your history of evictions, lawsuits, and repossessions
- Late credit card payments
- Your employment history
- Evidence that you pay rent on time
Presenting Your Viability as a Renter
To increase your chances of being able to rent after a bankruptcy, you should present evidence that you are financially responsible. You can show the landlord your employment history, especially if you have been at the same job for a considerable length of time. If you were able to make rent throughout your bankruptcy case or in the time that followed, you can present receipts of the payments or a letter from your previous landlord.When you are looking for a landlord to approach, keep in mind that individual owners will be more likely to give you an apartment than rental agents, who work for companies that impose strict rental guidelines. An individual owner will likely have more freedom to listen to the nuances of your story, especially if the circumstances of the bankruptcy were beyond your control.
Buying a House After Bankruptcy
The biggest obstacle most people face when they buy a home is getting a mortgage. That is true regardless of your bankruptcy status. If you have a bankruptcy on your record, you will most likely qualify for a loan within two years of your dismissal. It is important to remember that the clock starts from the dismissal date, rather than the day you filed. Some of the most common loan types include:
- FHA loans
- Conventional loans
- United States Department of Agriculture loans
- Veteran's Affairs (VA) loans
FHA loans are insured by the government and allow a down payment of as little as 3.5%. They are a more accessible alternative to conventional loans, which are provided by private lenders. United States Department of Agriculture loans provide special terms to low or mid-income people who purchase real estate in rural areas. Similarly, Veteran's Affairs loans exist make it easier for veterans to buy a home by waiving the down payment and credit score requirements.
Chapter 7 Bankruptcy
If you have filed for a Chapter 7 bankruptcy, you will likely qualify for a loan 2 years after your case has been resolved. If you can show that the conditions which led to your bankruptcy were not your fault, such as a sickness or a divorce, you might even qualify within 12 months. Improving your credit score will likely improve the rates that you get.
Chapter 13 Bankruptcy
Since Chapter 13 bankruptcy involves a payment plan, lenders will look to see if you have been making the payments on time. Many people have been able to qualify for a home loan within the 3-5 years it takes to finish the plan, depending on their ability to show that they have been keeping up with it. If you would like to go this route, you will probably need to show 12 months of consistent payments.With this type of bankruptcy, there are a few other steps you might need to take to get the home. In some cases, a court might need to grant you special approval to secure an FHA loan. You may also need to demonstrate that the circumstances that caused you to file for bankruptcy have been resolved for the foreseeable future.
How a Bankruptcy Attorney Can Help
Dealing with debt is a challenging process that can affect all aspects of your life, including your ability to buy or rent a place to live. Working with a bankruptcy attorney can help you create a plan that will improve your finances. Throughout the process, your lawyer can advocate for your best interests and advise you on how to move forward. If you would like more information on how to get out of debt, contact Thomas Kerns McKnight LLP, today!