Home Buying after Bankruptcy

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Buying a home after bankruptcy is fraught with challenges but it is possible. Sometimes filing bankruptcy is unavoidable, and one of the downsides is that it remains on your credit report from seven to 10 years—potentially affecting your ability to purchase a home. Robert Satnick, residential president of the California Mortgage Brokers Association, says, "It's going to become increasingly more difficult to obtain credit over the next few years, particularly if you've filed for bankruptcy.” Individual Bankruptcy at a Glance The most common forms of individual bankruptcy are Chapters 7 and 13 of Title 11 of the United States code. With Chapter 7, known as liquidation or straight bankruptcy, some of your property is sold by the trustee who applies the sale proceeds to your debts. In Chapter 13, or reorganization, you pay back the money you owe in monthly installments over a three- to five-year period. Not all debts are settled or discharged in bankruptcy—child support, student loans, alimony and liens like the ones on vehicles are still your responsibility. But that’s not necessarily a bad thing. By keeping current with these obligations, you show lenders you take all of your debts seriously, which will help re-establish your credit. Monitor Your Credit Report After bankruptcy, reestablishing yourself as a good credit risk is essential. The first step you should take is reviewing your credit report. "Make sure there's nothing wrong on it and you're not shown with a delinquent balance even though you paid the bill on time," says Andrew Housser, founder and co-CEO of Bills.com, a consumer financial education web site. Pay close attention to those debts that were discharged in bankruptcy, making certain they show up on your report as “closed.” The Fair Credit Reporting Act gives you the right to check your report for free once a year. Challenge any errors you find with the credit reporting agency by notifying them in writing. All three credit reporting agencies provide directions for disputing information on their respective web sites: Equifax, Experian and TransUnion. You're required to have a copy of the credit report they issued prior to filing disputes. You'll need the details surrounding the disputed item, including cancelled checks, account numbers, correspondence, notes, warranties and guarantees. AnnualCreditReport.com, cosponsored by all three credit reporting agencies, has step-by-step instructions for obtaining a copy of your report by applying online, phone or mail. It takes about 15 days to process your request.

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