08 March 2011
Bankruptcy and Home Loans
The meaning of Bankruptcy means the individual or organisation who has borrowed money is unable to repay the same. The incapacity of an individual to repay the loan amount in the given period of time is termed as bankruptcy. How does this link to home loans and does a person who has declared bankruptcy be eligible for a new home loan?
The person declaring bankruptcy can be either voluntarily or involuntarily. Sometimes the borrower struggles with finances and has large sums to be repaid. If he cannot collect the amount in the given time tenure then he can declare voluntary bankruptcy in the court. This will give him some time to collect and find total value of his assets and also come up with the sum or part of the sum to repay the loan. His inability to repay the creditors for a long time compels them to go by the law. If the borrower has not paid his dues for a long period them it is understood that they are not in the position to repay the creditors. Some times the court of law can assign a trust or committee to manage the funds of the bankrupt individual or organization. This committee will assess the assets and finances of the borrower and come up with the total funds or part of it to repay the debt. This declaration must be resorted to at last and only when the other options of repayment are saturated. As this gives bad credit ratings and will be on credit record for at least another ten years. The financial market and lenders usually refer to our credit records before approving any loan and filing for bankruptcy means they get a negative financial picture about you.
Still it is possible to get a home loan as there are many financial loan lending institutions who offer mortgage loans and bankruptcy loans considering your total assets and investments. The first thing one can go about after filing for bankruptcy is that of opening a new credit record. It would be advisable to keep this record clear and all dues cleared on time. Following this clean chit for about a year or two will bring back your credit rating upward. Try to balance expenses and avoid extra spending and increase savings. This will be on your credit record and the new lender can go through the fresh credit history for approving of a home loan. Also they do no have risk as they can offer amount that is in par with your old home so that in case of default they can recover it by selling the property. If you are applying for a home loan for the first time after filing for bankruptcy then it is advisable to follow this advice of new credit history since you do not have any financial backing of any asset except for your qualifications and financial position and job security. Try going in for a larger sum of down payment to increase your chances of loan approval after declaring bankruptcy maybe after a gap of two to three years.