Bankruptcy is the legal process in which a person or company declares inability to pay debts. Bankruptcy laws and procedures are quite complex but for our purposes there are two types of bankruptcy. Chapter 7 bankruptcy eliminates (discharges) most of your debts in exchange for giving up property that is not protected by "exemption" laws. Chapter 13 lets you rearrange your financial affairs, repay a portion of your debts and put yourself back on your financial feet. Your debt repayments are administered by a court appointed trustee. In either case when your bankruptcy is finished it is said to be “discharged” and you no longer owe the debts. A bankruptcy can also be dismissed either by the debtor or by the court for various reasons. If it is dismissed, it is not completed and the debtor still owes money to his or her creditors. If you have had a bankruptcy it will remain on your credit report for up to 10 years from the time it was filed. This does NOT mean that you can’t get a home loan for 10 years. Lenders look at about how much time has passed since the bankruptcy was dismissed or discharged. Lenders have different requirements as to how much time must have passed since the bankruptcy before they will lend you money for a home purchase. A rule of thumb that can be used as of this writing is that a minimum of 2 years must pass from the date a bankruptcy is discharged or dismissed for you to qualify for a loan.

Another important thing to keep in mind is that it does not matter how much time has passed since your bankruptcy if you don’t handle credit well after your bankruptcy is discharged. It is vital to develop good money and credit management habits and practice good financial sense if you have had a bankruptcy in the last 2-10 years. The American Home Buyer Service can help with that. We can’t get the bankruptcy removed from your credit report, but we can help you with your money management and handling of credit today and in the future so that you can qualify for a home loan.

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