Bankruptcy and Foreclosure: How They May Delay Your Next Purchase

Almost all mortgage loan programs have restrictions on how soon after a Bankruptcy and/or Foreclosure you can purchase a new home. The minimum is typically 2 years after a bankruptcy and 3 years after a foreclosure; with re-established credit. The problem arises as to when those dates begin.

I recently had a customer that was three years past their bankruptcy discharge date and had re-established suitable credit. Their previous mortgage was included in the bankruptcy and was not contested by the lender. Unfortunately, they did not sign over their previous house to the lender with a quit claim deed and the lender went through the foreclosure process on the property. Although not contested by my borrower, the foreclosure process took 16 months to complete, adding 16 months before the clock even began running on their foreclosure.

Neither your attorney nor the judge understand the ramifications that a court proceeding may have on your credit and your ability to borrow in the future. I see this all the time with both bankruptcies and especially divorces. For now, let’s concentrate on the bankruptcy process.

During the bankruptcy, you can choose to either include the house losing the equity in your property, or you can choose to “re-affirm” that debt and continue with your payments. In my borrowers situation, they chose to walk away, not able to continue with the payments. What they should have done was to sign a quit claim deed and have it recorded, giving their rights in the property to the lender.

If you choose to re-affirm the debt, then there is also paperwork that you must complete with your lender. Otherwise, even though you never miss a payment, they will continue to report your mortgage as included in the bankruptcy and not show your current “good” payment history.

Your lawyer, and the judge, are only responsible for dealing with the matter at hand and do not look to see how that will affect you in the future. Speak with someone that understands how such an action can affect you going forward. If you know someone going through a bankruptcy or divorce, have them call me.


© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.

Helping Your Children Establish Credit

It is important that your kids establish and learn to manage their credit early. Credit scores affect the ability to get a loan, the cost of insurance, and can even be important in obtaining employment.

So, how do you help your child establish credit? One of the first things is to make them an authorized user on one or two of your credit cards. As an authorized user, that credit will begin to report in their name also. It is not necessary to give them a card, but giving them a card with a low limit can help them learn financial responsibility be giving them responsibility for coming up with the money to pay the bill.

Always make sure that the bill is paid on time, and don’t allow the card to be paid late to “teach” them a lesson. Allowing them to miss payments, will lower their credit and start them out on the wrong foot.

Be careful when co-signing for your children. In most cases, you will not receive the monthly statements and your attempt to help teach them financial responsibility, could actually hurt your credit. When you find out that they are in trouble, it may be too late. If your credit is affected also; it could take months or years to repair.

For more information on credit issues go to:

www.experian.com
www.transunion.com
www.equifax.com

This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.