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Do you have questions about bankruptcy? We have answers
Stephen Behrends • October 5, 2020
Some Bankruptcy, Repossession, Home Purchase Loans and Foreclosure Questions Answered
Q: Do you have to have bad credit to be able to file bankruptcy? We have pretty good credit but can’t afford to pay much more than the minimum payments on our credit cards. They spiked when my wife was ill and our insurance didn’t fully cover the costs of many of her medications. We’d like to buy a house but we can’t save money for a down payment because of the payments on the credit cards and it will take years to pay them off. Can we file bankruptcy even though we have good credit scores?
A: There is no requirement that you have bad credit to file bankruptcy. The better your credit is going into bankruptcy, the easier it will be to rebuild it afterwards. Bankruptcy might be a reasonable and responsible solution to your situation.
Q: I have decided that I have to file bankruptcy. I talked to an attorney for a free consultation and was thinking of hiring him. I had a question about whether I should still pay the payment on my credit cards while raising the money to file. It would take six months if I keep making the payments but only a couple of months if I stop. But I didn’t know if I would get in trouble with the bankruptcy court if I stopped making my payments and used the money to pay for the bankruptcy lawyer. I left a few messages but never got a call back. It turned out that they work completely by themselves, without partners, a legal assistant or an office manager. So I was hoping I could get the answer from you!
A: Once you have decided for sure to file bankruptcy, it is ok to stop making the payments on your credit cards and other unsecured debt. Of course, you should keep paying your car payments and student loans. Stopping the payments will make it slightly harder to rebuild your credit since you will get some negative marks on it from not making the payments but on the other hand it will help you file your case much sooner.
Q: I have heard that it takes 10 years to rebuild your credit after a bankruptcy. Is that true?
A: Most people find that they can rebuild their credit after a bankruptcy in two and a half to three and a half years. You should plan on taking active steps to rebuild your credit. These are things like taking advantage of small opportunities to get and use credit, including secured credit cards or a modest car loan. Sometimes it helps to start an account at a local credit union before your file bankruptcy and then try to use that relationship to help build your credit afterwards.
Q: How long will after I file bankruptcy can I get a home loan?
A: The answer depends on whether you lost a home to foreclosure in the past and whether you have the income to qualify for a home loan. If you have had a foreclosure, it can take 4 to 6 years longer than if you did not. Most people find that if they have regular income, they can qualify for a home loan in two and a half to three and a half years after a bankruptcy if they don’t have a foreclosure on their credit record. Of course, the better your credit is going into bankruptcy, the easier it is to rebuild it afterwards.
Q: I have lived in Oregon my whole life. I have a lot of credit card debt, approximately $45,000.00 from the period of time when I was in a relationship and had a good income. I also have a lawsuit against me from a car that I purchased with my girlfriend. I wasn’t able to make the payments after we broke up and so it was repossessed. The lender sold it and there wasn’t enough to pay the balance we owed. The only thing I have now is a couple of years old Ford F-150 that is free and clear. It is worth about $16,000.00 or $17,000.00 if I tried to sell it. I would like keep it because I use it for my job in construction. My brother said that I should transfer it to him or to my dad before I file bankruptcy so that, when I do, I won’t have anything for the bankruptcy court to take. Is this a good idea?
A: No, it is definitely a bad idea. If you transfer it, the bankruptcy trustee can sue your brother or your father for its value. If you didn’t transfer it but instead still had it when you filed bankruptcy, you could claim it as exempt under the Federal Bankruptcy Exemptions. There is a $4,000.00 exemption for a vehicle and a $13,900.00 catch all or wild card exemption that can be added to the vehicle exemption to cover your truck. Under those circumstances, the bankruptcy trustee couldn’t take it. But if you transfer it, you can no longer claim the exemption, so the court could get it or its value from your brother or your father.
Q: The IRS is taking 15% of my husband’s social security for personal income taxes on our 2014 returns. We filed the in 2015 when they were due. We owed a lot on them because we had to take money out of a 401(k) to help our daughter. I am still working and am being garnished by the State of Oregon for the same tax year. They are taking 25% of my net pay. We don’t have a lot of other debt and we live in a manufactured home that we own outright. It is worth about $20,000.00 and is located in a mobile home park. I heard from one friend that you can’t file bankruptcy on taxes and that we would lose our home if we did anyway. But my sister, who had to file bankruptcy a couple of years ago, said that her attorney told her that her home was protected up to a value of $50,000.00. She also said that her accountant told her that once taxes are more than three years old, they can be discharged in a bankruptcy case. Is she right about these things?
A: Yes, she is, with one possible exception. It is true that taxes that were due more than three years ago and filed more than two years ago can be discharged in bankruptcy. She is also correct that your homestead exemption is $50,000.00 for a couple and $40,000.00 for an individual under Oregon law. So your home is safe. However, if the IRS filed a tax lien with the Secretary of State, it might have a lien against your home. Bu the IRS wouldn’t try to take your house or try to sell it even if they had a lien. You would just have to pay them if you sold it within 10 years from when the lien was filed, even if you filed bankruptcy. If they filed with the County Deeds and Records, the IRS wouldn’t have a lien against your MH because you don’t own the land. The bankruptcy would help your monthly budget a lot because it would stop the garnishment of your check and the 15% coming out of your husband’s social security.
Q: My brother co-signed on a car loan for his son and his wife. The car was totaled in a wreck and it turned out that there wasn’t any insurance because their check had bounced. Now they are going to file bankruptcy. My friend said that the bankruptcy would wipe out the debt so that it couldn’t be collected from my brother either but that doesn’t sound right to me. Will he still be responsible for what the credit union doesn’t get from selling the wrecked car?
A: Yes. Bankruptcy will only take care his son and his wife’s liability on the loan; it doesn’t wipe out the debt or eliminate your brother’s responsibility for it. He would either have to file bankruptcy himself or try to work out a settlement or payment plan with the credit union.
Q: I am worried about foreclosure sale being set on my house. I am 68 years old and I just can’t afford the payments on my social security of $1,464.00 per month. My house is worth about $235,000.00 and I only owe $67,000.00. Realtors keep calling and knocking on my door but I don’t want to move. I heard that Chapter 13 could stop a foreclosure and save my home. Would it work for me?
A: No, because you would have to be able to make the payments after the Chapter 13 case was filed. Otherwise, you would have to plan on selling it yourself either before or after the bankruptcy was filed to stop the foreclosure. There is only one real alternative that might be able to keep you in your home and that is a reverse mortgage. Generally, we don’t like them because over time they can reduce the equity in your home but they do work well to eliminate mortgage payments while letting you stay in your home. However, if you are thinking of looking into reverse mortgages, call around and ask a lot of questions because the terms and the costs can vary widely. And don’t forget that you still have to pay the homeowners’ insurance and the property taxes yourself, even if they were being paid out of your monthly mortgage payment before. But if a foreclosure sale is set and you need to stop it, you can always file Ch 13 to buy the time to get the reverse mortgage in place.
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Bankruptcy Attorney Q & A- (Part 2) How Soon After Bankruptcy Can I Get an FHA Loan and Buy a House?
Bankruptcy Attorney Q & A- (Part 2) How Soon After Bankruptcy Can I Get an FHA Loan and Buy a House? Clients frequently ask about future credit after bankruptcy and especially about if they will ever be able to buy a home. The answer to this question is not always as simple as it should be because it varies by the type of home loan. This blog addresses special mortgages backed directly by the federal government such as Federal Housing Administration first time home buyer and rehabilitation loans. If you do not qualify for one of these loans, you should read our related blog on conventional mortgages and buying a home after bankruptcy. Just paste this link into your browser window: https://www.oregon-attorneys.com/bankruptcy-attorney-q-a-how-soon-after-bankruptcy-can-i-buy-a-house The short answer is that a waiting period of one to three years after filing for bankruptcy is all that is required for Federal Housing Administration, Veterans Administration and US Department of Agriculture Rural Home Loans. But this is just as to the bankruptcy filing. Of course, you still need to take active steps after bankruptcy to rebuild your credit. Check out our blog posts on rebuilding your credit after bankruptcy https://www.oregon-attorneys.com/5-steps-to-rebuilding-your-credit https://www.oregon-attorneys.com/filing-bankruptcy-is-just-the-first-step-in-rebuilding-your-credit And, you have to have sufficient income, possibily a down payment and a good debt to income ratio to buy a house. A Chapter 7 or Chapter 13 bankruptcy will show on your credit report for 10 years and negatively affect your credit. However, loans targeted to special populations and backed by the federal government have rules that allow you to buy a home shortly after discharge. These rules are subject to change so we recommend that you consult a mortgage broker for the most up to date standards for qualifying. Here are the waiting periods for these loans so you can buy a house. ● If you otherwise qualify for an FHA loan, you must wait at least 2 years after a Chapter 7 discharge or 1 year after a Chapter 13 discharge. ● If you otherwise qualify for a VA loan, you must wait at least 2 years after a Chapter 7 discharge or 1 year after a Chapter 13 discharge. ● If you otherwise qualify for a USDA loan, you must wait at least 3 years after a Chapter 7 discharge or 1 year after a Chapter 13 discharge. In addition, if you are in a Chapter 13 plan and you need to refinance, then FHA and VA can also help you. FHA loans used to refinance a home while in a Chapter 13 bankruptcy require up to 2 years of on time payments to the Chapter 13 trustee. You must also meet the other loan standards such as sufficient income and appropriate loan to value ration. But the loan proceeds must allow you to conclude your Chapter 13 plan as of the closing of the loan. We sometimes call this buying out your plan. This can work well if you have the equity. It is also possible to use VA loans to refinance a home while in a Chapter 13 bankruptcy. You need up to 2 years of on time payments to the Chapter 13 trustee. You must also meet the other loan standards such as sufficient income and appropriate loan to value ration. But you do not need to buyout your plan. Here is a brief description of these home loans. ● FHA first time home buyer loans allow for a low down payment currently at 3.5% with a credit score at or above 580, or 10% if your credit score is between 500-580. The property needs to pass an inspection. And there is a cap on these loans that varies by county. For example, a home in Lane County can qualify up to $420,000 but in Multnomah County that amount is $598,000. ● FHA rehabilitation loans have similar standards. However, the loan can include cash out to bring the home up to the required inspection standards. The cash out is limited to $35,000 for qualifying improvements such as replacing roofing, enhancing accessibility for a disabled person or making energy conservation improvements. ● VA loans for new home purchase start with a Certificate of Eligibility (COE) to show your lender that you qualify based on your service history and duty status. This is obtained from the VA. The VA does not always require a down payment but one may be needed depending on the amount of the loan. The property needs to pass an inspection. But unlike the FHA, the VA does not set standards for the loans as to credit or income. Typical lenders do want minimum credit scores in the 600 range. ● USDA rural home loans do not require a down payment. But the home and its location are essential to obtaining this type of mortgage. For example, the house size is usually 2000 square feet or less. In fact, the home buyer must need the home to have decent, safe, and sanitary housing and be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to be met. Income qualifications are lenient as the loan can include a payment subsidy and are only available to low income borrowers. The USDA doesn't have a fixed credit score requirement, but most lenders require a score of at least 640, and 640 is the minimum credit score you'll need to qualify for automatic approval through the USDA's automated loan underwriting system. Conventional loans require a longer waiting period between bankruptcy discharge and requesting a home loan. These types of loans are not guaranteed by the federal government and can require significantly longer waiting periods. But your state or local government may have other programs that can also help. And a bank involved in the Community Reinvestment Act (CRA) will also have loans available for low to moderate income home buyers. Finally, if you were impacted by recent fires and lost your home in such a disaster, the Small Business Administration and FEMA may have loan options to rebuild. Filing bankruptcy is usually just the first step to rebuilding your credit and putting yourself back on track to possible home ownership in the future.
Bankruptcy Attorney Q & A - How Soon After Bankruptcy Can I Buy a House? Clients frequently ask about their future credit ratings after bankruptcy and especially about being able to get a mortgage to buy a house. The answer to this question is not always simple as it varies by the type of mortgage. This blog addresses conventional home loans. If you qualify for a FHA or VA loan, you should read our related blog. Just pasted this link into your browser window https://www.oregon-attorneys.com/bankruptcy-attorney-q-a-part-2-how-soon-after-bankruptcy-can-i-get-an-fha-loan-and-buy-a-house The majority of conventional home loans are sold with in 6 months by the original lender. Fannie Mae and Freddie Mac are the largest purchases of these home loans, buying upwards of 65% of the annual home loans. We call this the secondary mortgage market. The rest of these loans are purchased by banks, hedge funds and asset backed trusts. Over the life of a 30 mortgage, it may be sold several times. A bankruptcy or other major negative credit event will create a waiting period before you qualified for a home loan that can be purchase by Fannie Mae or Freddie Mac. Many original lenders want the home loans qualified for purchase by Fannie Mae and Freddie Mac. So they try to meet Fannie Mae and Freddie Mac standards in all cases. Here are the waiting periods for these home loans to be qualified for purchase by Fannie Mae and Freddie Mac. • A Chapter 7 or Chapter 11 Bankruptcy waiting period is 4 years from the discharge or dismissal date of the bankruptcy action. A 2 year waiting period is allowed if extenuating circumstances are documented. • A Chapter 13 Bankruptcy waiting period is 2 years from the discharge date or 4 years from the dismissal date. This shorter waiting period after discharge recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan. A borrower who was unable to complete the Chapter 13 plan must wait 4 years. A 2 year waiting period is allowed if extenuating circumstances are documented as to a dismissed case. • A borrower who filed more than one bankruptcy within the past 7 years has a 5 five-year waiting period from the most recent dismissal or discharge date. However, two or more borrowers with individual bankruptcies are not cumulative, and do not constitute multiple bankruptcies. For example, if the borrower has one bankruptcy and the co-borrower has one bankruptcy this is not considered a multiple bankruptcy situation requiring a 5 year waiting period. A 3 year waiting period is allowed if extenuating circumstances are documented and is measured from the most recent bankruptcy discharge or dismissal date. But the most recent bankruptcy filing must have been the result of the extenuating circumstances. You still need to rebuild your credit and avoid accumulating a lot new debt to before you can buy a house. And you have to have sufficient income and a good loan to value ratio to buy a house so you can meet the standards to qualify for a home loan. Check out our blog posts on rebuilding your credit after bankruptcy. Just paste these links into your browser window: https://www.oregon-attorneys.com/5-steps-to-rebuilding-your-credit https://www.oregon-attorneys.com/filing-bankruptcy-is-just-the-first-step-in-rebuilding-your-credit These bankruptcy waiting periods may or may not be better then the alternatives. Here are the waiting periods for non-bankruptcy major negative credit events. • Foreclosure requires a 7 year waiting period measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower. A 3 year waiting period is allowed if extenuating circumstances are documented. • Foreclosure and Bankruptcy on the Home Loan. If a home loan was discharged through a bankruptcy, the bankruptcy waiting periods is applied if the new lender can document that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable waiting periods applies. • Deed-in-Lieu of Foreclosure, Pre-foreclosure Sale (often called a short sale), and Charge-Off of a Mortgage Account require a 4 year waiting period from the completion date of the deed-in-lieu of foreclosure, pre-foreclosure sale, or charge-off as reported on the credit report or other documents provided by the borrower. These events are alternatives to foreclosure. A 2 year waiting period is allowed if extenuating circumstances are documented. • A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. These are typically identified on the credit report through Remark Codes such as “Forfeit deed-in-lieu of foreclosure.” • A pre-foreclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer. These are typically identified on the credit report through Remark Codes such as “Settled for less than full balance.” • A charge-off of a mortgage account occurs when a creditor has determined that there is little (or no) likelihood that the mortgage debt will be collected. A charge-off is typically reported after an account reaches a certain delinquency status and is identified on the credit report with a manner of payment (MOP) code of “9.” Additional requirements may apply, especially when seek a shorter extenuating circumstances period. Only the purchase of a principal residence is permitted. Only limited cash-out refinances are permitted. You may need a larger down payment. For the purchase of second homes or investment properties and large cash-out refinances you must wait the full 7 years. These rules are subject to change, so one should consult a mortgage broker for the most up to date requirements for buying a home.
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