Many people aspire to homeownership, but if they have filed bankruptcy they often believe it’s an unreachable goal. This isn’t true. In fact there are several ways bankruptcy can help someone become a homeowner.
(1) Bankruptcy can improve credit scores and other creditworthiness metrics. It’s avoiding bills and creditors that causes problems. In this sense, filing bankruptcy is the mark of a responsible person accepting the consequences of his or her actions. A bankruptcy discharge eliminates the attributes that bring down credit scores.
(2) Discharging debt can free up significant amounts of income and future interest payments for people to be able to save money again for the future. Those savings can be used to purchase a home.
(3) For those whose incomes are too high to qualify for chapter 7, chapter 13 is also available. Chapter 13 bankruptcy allows debtors to enter into three-to-five-year loan repayment plans, after which their eligible debts are discharged. Here too, post-bankruptcy petitioners can save money out of their income that they would otherwise have spent on debt service payments.
(4) Bankruptcy can help with other types of loans, such as auto loans. For instance, chapter 13 allows people to “cram down” the unpaid principal on a debt secured by a car. This can save money and allow you to keep your car.
(5) Bankruptcy can be used with other government programs to reduce debts. For example, most federal student loans are eligible for various income-sensitive repayment plans. These plans can significantly reduce monthly payments, and after they are concluded, the remaining loan balances are canceled. Here, too, is another opportunity to save money for homeownership.
It might seem intuitive to believe that bankruptcy makes homeownership impossible, but really the opposite is true. Once someone is in financial trouble, the costs of filing bankruptcy are outweighed by those of trying to repay debts for the indefinite future. Consequently, bankruptcy makes large purchases like homes more affordable.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy law changes Bruce Weiner for a free initial consultation.