How Does Bankruptcy Affect My Ability To Get A Loan?

“How Does Bankruptcy Affect My Ability To Get A Loan?”

This is a common question we get when people are facing a Michigan foreclosure and considering attempting a short sale.  Keep in mind that none of us are attorneys and you need to consult with one if you are considering filing bankruptcy.

The timing involved to get a new mortgage has many factors and no one can tell you exactly how long it will take because loan guidelines are constantly changing.  Here’s what my understand is, in order from bad to worse.

1) Chapter 7 Bankruptcy (BK-7), leave the house out, keep making payments on the house.
2) BK-7, put the house in, attempt to avoid the full foreclosure by selling via short sale*
3) BK-7, put the house in (this will still lead to a foreclosure)
4) BK-7, leave the house out (this will still lead to a foreclosure)

If you can’t afford to do #1, why not at least attempt #2?  It can’t hurt, and if #2 fails, by default you’ll be at #3.

Leaving the house out of the BK-7 means the lender will be able to come after you for the amount of money they lose on the house.  I don’t see why anyone would want to leave a house out of a BK-7 unless they intend to keep it long-term and you have some equity in it (that’s #1 above, which of course you need to be able to afford).  Most people can’t afford to keep the house and have no equity because of the rate at which values are declining in Michigan.

* A short sale is when the lender agrees to accept less than the full balance.  Of course this is our specialty which we do not charge for.

Joel

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