Will I be able to get Credit after Bankruptcy?

One of the biggest concerns for clients is if they filed bankruptcy, then will they be able to get credit after the case is done?

Written by Columbia SC Bankruptcy Attorney Colleen Brunson.

The answer is YES!

Some creditors like the fact that the bankruptcy has cleared most or all of the debtor’s debt. Creditors will look at many factors to consider whether they will lend to the debtor. Usually, the creditors will look to a debtor’s income and job stability.  If the debtor has a long job history with the same employer, then it will help that debtor to get credit.  Don’t be discouraged if you don’t have a long job history because creditors look at other factors as well.  The debtor’s income and assets are a factor in whether the creditor will lend to a debtor.

Will you be able to buy a house?

The answer is YES!

Most mortgage creditors rely on Fannie Mae underwriting guidelines. See Fannie Mae Selling Guide for Single Families.

For a chapter 7, a four year waiting period is required from the date of discharge or dismissal.  Obviously, a discharge will be better than a dismissal of the case.  There is an exception to the four year rule: two years from the discharge or dismissal if extenuating circumstances can be documented.

For a chapter 13, the waiting period is two years from the date of discharge or four years from the dismissal date. Again, debtors are rewarded for completing their bankruptcy plan. If the case was dismissed, there is an exception to the four year waiting period. There is a two year waiting period if extenuating circumstances can be documented. There are no exceptions permitted to the two year waiting period after the chapter 13 discharge.

If there are multiple bankruptcy filings in the past seven years, then a five year waiting period is required. A three year waiting period is permitted if extenuating circumstances can be documented and the most recent bankruptcy filing must have been the result of extenuating circumstances.

If there is a foreclosure, then a seven year waiting period is required and a three year waiting period for extenuating circumstances can be documented. The purchase of second homes or investment properties are not permitted until the seven year waiting period has elapsed. If it is the principal residence, the waiting period may be shorter.

If there is a deed-in-lieu of foreclosure or short sale, then the waiting periods are two, four, or seven years based on the loan-to-value (LTV) ratio. The LTV ratio is the ratio of a loan to the value of an asset purchased. So if the house is worth $200,000 and the loan is $175,000, then the LTV ratio is 88%. The lower the LTV ratio, then the shorter to the waiting period.

So it appears that debtors will be able to buy a house within two to four years of the bankruptcy discharge. A bit longer if the case is dismissed. I tell my clients to worry about their credit after they make it through the bankruptcy. It is important to focus on completing their bankruptcy case first.