Though filing a Chapter 7 bankruptcy can improve an individual’s creditworthiness and even allow them to outright keep ownership of certain exempt property, it is not often a cure for upside down debt on a home. Generally, borrowers must endure a minimum "seasoning" period before lenders are willing to strike a deal on a new loan. For FHA financing, that seasoning period is a minimum of two years after the date of the discharge—in addition to whatever amount of time is required by the new lender, before the borrower can successfully apply for a new home loan. That means that your best bet at qualifying for an FHA loan after a discharge is to resolve the debt on your previous property.
Though a chapter 7 is designed to help insolvent borrowers reestablish creditworthiness and get their financial health back on track, it does not automatically get them off the hook. That’s because, while personal liability for the debt on your mortgage was discharged in the bankruptcy, the mortgage lien on the property remains very much alive. Because your name is on the title to the property, new lenders are unlikely to extend a hand before the lien on the property is resolved.
A chapter 7 filing will not simply erase your debt; if you’ve been discharged a mortgage in bankruptcy proceedings, being proactive and eliminating your role with the property lien is imperative. Additionally, credit reporting mistakes are very common after a bankruptcy, which makes attaining a good credit rating and qualifying for a new loan all the more difficult. The most effective way to rid yourself of the upside down property and save your credit is to pursue a short sale and move on. Be proactive and review your credit report for discrepancies and discuss your options with your bankruptcy attorney.
Stephen K. Hachey, a Florida real estate attorney can help your wade through this difficult process and determine a positive solution. Contact him at 813-549-0096. The opinions in this post are solely those of the author. The author takes full responsibility for the content. Like all blog posts, this is offered for general information purposes and does not constitute legal advice.
This post was written by Stephen Hachey. Follow Stephen on Google