Getting on with your life after bankruptcy is a top priority. People want to recover professionally, personally and financially after paying off their debts, but it’s not always as easy as you might expect. One of the biggest questions clients ask bankruptcy lawyers is whether they can do major financial transactions, such as getting a home equity loan after bankruptcy.
It is always a good idea to discuss these decisions with your lawyer or a financial planning expert, as it can be easy to get into a celebratory mood after your leave and make decisions too quickly and out of time. the slight. Here are some facts you need to know before you start the home equity loan application process:
Can I get a home equity loan in bankruptcy?
Due to the nature of bankruptcy, most people do not apply for a new line of credit or loan during the process. With your finances already under scrutiny and scrutiny, now might not be the best time to consider these kinds of decisions. It may not even be a possibility.
During a Chapter 7 bankruptcy, your assets are essentially under the control of the bankruptcy court where you filed your case. There are several reasons why they wouldn’t allow you to open a new line of credit or loan during this time.
First, your home loan debt may have been written off during the bankruptcy process, but the lien on your home that was taken out with a mortgage was not. Often times, if homeowners are behind on their mortgage payments when they file for bankruptcy, it means they have their mortgage foreclosed and they lose their home as part of the deal. If they are up to date on all payments and can show that they have enough income to stay up to date, they are likely to keep their home.
To avoid losing your home, you are also not allowed to access the equity in your home during the bankruptcy process. This means that if the value of your house is excluded and you are allowed to keep it, the condition is that the value remains in the house and the owner is not allowed to access it in cash.
Things may be slightly different in Chapter 13 bankruptcy, but being allowed to get a home equity loan in the process is still highly unlikely. During Chapter 13 bankruptcy, you work with creditors and the bankruptcy court to create a repayment plan, rather than paying off your debts. This means that you have the means to pay off your debts if they are restructured, but only if they are restructured in a way that works for your current income and assets.
Usually, losing your home to foreclosure is not an issue during Chapter 13 bankruptcy, unless you are offering your home as part of the repayment agreement. However, it is unlikely that a bank will agree to let you take out a home equity loan during this time, as your finances are always on the move.
The only way for most consumers to receive a home equity loan during this time is if they agree to use the proceeds of that loan to pay off their creditors, which means that they don’t use any of the funds for money. personal expenses or investments.
In general, your best bet is to wait and try to get a home equity loan after bankruptcy.
Can i have a Home equity loan after bankruptcy?
When it comes to getting a home equity loan after bankruptcy, your ability to do so depends on several factors. One of the most important is whether you have a stable and verifiable income.
In addition, you will need to discuss with a bankruptcy lawyer the impact of the bankruptcy chapter you have filed on your ability to get a home equity loan. There are a few differences in how bankruptcy works between Chapter 7 and Chapter 13, and that includes their impact on your financial decisions going forward.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy aims to free you from debt. This is a great option for people who are seriously under water with no way to repay their creditors. However, it also has some serious drawbacks when it comes to bouncing back financially right away.
The main concern is that your creditors will not be paid off in full in a Chapter 7 bankruptcy. As such, bankruptcy itself will damage your credit quite badly. It also stays on your credit report for ten years after release.
Some banks might consider giving you a home equity loan as soon as three years after bankruptcy, but again, it mostly depends on how you work to repair your credit during that time. Other banks may insist that you wait up to 5-7 years after that, and others won’t approve you unless bankruptcy is entirely out of your report.
Chapter 13 Bankruptcy
Once again, things are a little different if you go for Chapter 13 bankruptcy. Since the impact on your credit of a Chapter 13 bankruptcy is less than that of a Chapter 7, you will have a lot more. ease of obtaining a home equity loan after release. However, it may still take a while.
You should keep your credit clean during this time and be prepared to negotiate with your lender or bank, as they may only be willing to offer you about 80% of the total amount you might otherwise get.
Still not sure about your options? Speak to an experienced bankruptcy lawyer from the Van Horn Law Group.