Can You Buy a Home in Pennsylvania If You File for Bankruptcy?

For many people in Pennsylvania, filing for bankruptcy is a way to relieve themselves from certain forms of debt and move ahead with a clean slate. Filing for bankruptcy is a good option for many people, but it can have some negative consequences, such as lowering credit scores. Some people that have declared bankruptcy may wonder whether declaring bankruptcy will affect their ability to buy a home. It is possible for people who have declared bankruptcy to buy a home in Pennsylvania. However, they should be aware that there are special considerations to be weighed. Keep reading to learn more about what it takes to buy a home after filing for bankruptcy and how Pennsylvania bankruptcy attorneys Young Marr & Associates can help residents that have declared bankruptcy.

Waiting for Your Bankruptcy Discharge

Filing for bankruptcy in Pennsylvania will not necessarily disqualify someone from being able to buy a home. However, they will have to wait until they are discharged from bankruptcy. After a debtor has been discharged from bankruptcy, they will be released from their debts (some forms of debt, such as student loans, are not able to be discharged during bankruptcy). Following the discharge of debt, creditors are no longer able to pursue legal actions to collect debt against the debtor.

The length of time that a person will have to wait following a declaration of bankruptcy will depend on whether the debtor has declared a Chapter 7 or Chapter 13 bankruptcy. Following a Chapter 7 bankruptcy in Pennsylvannia, which is available only to individuals and not corporations or partnerships, a debtor will typically have to wait three to four months for their debt to be discharged. Besides student loan debts, the debts that can’t be discharged in a Chapter 7 bankruptcy include domestic obligations such as child support and alimony, fines and penalties from criminal activity, court costs, retirement plan loans, and more. Chapter 7 bankruptcies also do not discharge liens on properties.

Following the declaration of a Chapter 13 bankruptcy in Pennsylvania, a debtor will be discharged only after they have made all payments included in their payment plan. However, some debtors may be able to ask the court to discharge their debt early due to financial hardship. A hardship discharge will be granted only if the debtor is unable to complete the entirety of their payment plan because of circumstances that are beyond their control and not their fault. Also, the debtor must have already paid an amount in monthly payments equal to the amount they would have paid in a Chapter 7 liquidation case. The debts that are unable to be discharged in a Chapter 13 bankruptcy case are similar to the debts that are unable to be discharged in a Chapter 7 case.

How to Reestablish Credit After Bankruptcy

While declaring bankruptcy can solve many financial problems for debtors, one major drawback is that it can severely damage credit scores. With a damaged credit score, people that are seeking mortgages may receive higher interest rates from banks or may have their application for a loan denied altogether. Since a healthy credit score is so important to long-term financial opportunities, it’s important for debtors to do as much as they can to reestablish credit after bankruptcy.

There are a few simple ways that debtors can reestablish their credit following the declaration of bankruptcy. The first thing they can do is to continue to make payments on non-dischargeable debts, such as student loans, child support, alimony, criminal fines, and more.

The other thing that debtors can do is secure new credit. Securing new credit usually means taking out new credit cards. After getting a new credit card, it’s important to reduce your risk of falling behind on payments by using them to make small purchases and then paying them off in full and on time. Doing so consistently over a long period of time will eventually repair damaged credit scores.

How to Get a Home Loan After Bankruptcy in Pennsylvania

Bankruptcy will remain on a debtor’s credit report for an extended period of time, though the exact amount of time depends on whether it was a Chapter 7 or Chapter 13. Also, a person that is interested in buying a home will have to wait two years after bankruptcy to get an FHA loan. However, there are certain circumstances that will allow them to get an FHA loan in less than two years.

To get an FHA loan following a Chapter 7 bankruptcy in less than two years, debtors will have to prove a few things. Firstly, they will have to prove that the bankruptcy they filed was the result of circumstances that they had no control over. Secondly, they will have to prove that their income has decreased by more than 20% over the previous six months. Lastly, they will have to prove that the circumstances around the bankruptcy are unlikely to happen again.

To get an FHA loan following a Chapter 13 bankruptcy, a debtor will have to show evidence that they have been making payments as part of their payment plan for over a year. However, they will still need to get approval from a court to get an FHA loan.

Bankruptcy Attorneys Serving Pennsylvania Residents

If you are looking into declaring bankruptcy in Pennsylvania but have concerns about your ability to purchase a home in the future, get in touch with the Deleware County bankruptcy lawyers from Young Marr & Associates. The experienced attorneys that work with Young Marr can put their expertise to use to help their clients through the process of bankruptcy. To schedule a consultation, get in touch with Young Marr & Associates today by calling (866) 781-4058.