Have you thought about filing for Chapter 7 bankruptcy to free yourself from your debt burdens, and then wondered how it would impact your credit? If so, you’re not alone, as Chapter 7 bankruptcy filings are surging to record levels. We’re often approached by worried homeowners who fear the impact of bankruptcy on their financial well-being.
But what if there’s an alternative that can save your credit and your peace of mind? This comprehensive guide offers insights and answers to help you navigate the tough decisions ahead.
Can Filing for Chapter 7 Bankruptcy Really “Ruin My Life”?
We’ve all heard the Chapter 7 horror stories, tales of destroyed credit, and even lost homes. But remember, these are the exceptions, not the rule. Chapter 7 can sometimes be the best way to reset your well-being – despite its adverse impact on your credit.
At JVM Lending, however, we prefer to focus on ways to avoid Chapter 7 altogether. And we like to share our many success stories where we have done just that.
How Do Bankruptcy and Refinancing Work Together?
While there are options to refinance after bankruptcy Chapter 7, this blog is about avoiding both Chapter 7 bankruptcy. If you have equity in your home, like in the example provided below, refinancing could be the lifeline you need. By tapping into your home’s equity, you could pay off debts and avoid the bankruptcy route. Based on your specific situation, we have many ways to help you refinance and avoid bankruptcy. The keys to all of this come down to equity, income and/or credit. If you have enough equity in your home, however, you can likely refinance no matter what.
Turning Equity into Hope: Bruce’s Miracle To Avoid Bankruptcy
Our lending team worked with Bruce – who had invested his life savings in two failed burger franchises and who had almost $250,000 of credit card debt. He was on the brink of filing for bankruptcy and extremely worried about his credit standing and the embarrassment he would face in the community.
But fortunately, Bruce had returned to his former job in the corporate world and he had just enough equity in his home to allow us to help pay off over $175,000 of his credit card debt. The loan did not offer the best of terms due to his credit, but it still allowed him to save $4,500 per month – and, even better, when we paid off his credit cards, his credit score skyrocketed. Bruce used his monthly savings from the refinance to pay off his remaining debt and we refinanced him again into a much better loan about eight months later.
Bruce went from the verge of bankruptcy to a complete turnaround in less than a year.
The success of this refinancing strategy underscores the importance of our role in exploring all financial avenues. For clients like Bruce, leveraging home equity proved a potent alternative to the lasting repercussions of bankruptcy.
Bankruptcy Chapter 7 vs 13: What’s The Difference?
The difference between bankruptcy Chapter 7 vs 13 is more than just numbers. Chapter 7 is a liquidation bankruptcy – with much more adverse impact to your credit – while Chapter 13 involves a repayment plan. Knowing which one is right for you is essential.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is a “debt liquidation” bankruptcy – whereby all debts are effectively wiped out and there is no repayment plan. The court takes legal control over a bankrupt estate and sells off non-exempt properties and passes the proceeds to creditors. Please note though that most borrowers/debtors do not lose their homes – particularly if they are current or close to current with their mortgage payments.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is also known as a “Wager Earners Plan.” These are plans where borrowers pay off all or a portion of their consumer debts over a three-to-five-year period. Lenders look more favorably on Chapter 13 bankruptcies in general because they indicate a borrower’s willingness to pay off all of his debt.
What Happens to My Credit Score After Filing for Chapter 7 Bankruptcy?
A Chapter 7 bankruptcy filing has a severe impact on a borrower’s credit. Not only will it lower a borrower’s credit score, but it will prevent borrowers from getting any type of mortgage in most cases from anywhere from two to seven years!
The exception would be when borrowers have substantial equity – of approximately 35% or more. In those cases, borrowers can obtain mortgages, irrespective of credit quality. Please note, though, that mortgages for borrowers with poor credit and a recent bankruptcy have much higher rates and fees than mortgages for borrowers with good or even adequate credit.
Long story short: borrowers should avoid filing for Chapter 7 bankruptcy protection if at all possible. If borrowers have substantial equity, they should refinance instead of filing for bankruptcy protection.
Do You Lose Your House In A Chapter 7 Bankruptcy?
One of the most pressing concerns is whether you’ll lose your home. “Will I lose my house if I file Chapter 7?” The answer is generally no – in most cases. Most Chapter 7 bankruptcies allow you to keep your home – as long as you are current with your mortgage payments or only slightly behind.
Frequently Asked Questions
What is the minimum credit score I need to refinance instead of filing for Chapter 7 bankruptcy protection?
It depends on your circumstances. You can obtain a cash-out FHA loan with scores as low as 580, and even lower in some cases, if compensating factors, such as substantial equity or low debt ratios, exist. If, however, you have substantial equity (35% to 40% after you take cash out), you can possibly refinance no matter how low your score is.
How much equity do I need to refinance instead of filing for Chapter 7 bankruptcy protection?
If your credit score is 580 or higher and you have sufficient income, you can get a cash-out FHA loan up to an 80% loan-to-value ratio, meaning you only need a 20% equity cushion. If you have difficulty verifying sufficient income or a poor credit rating, you will only be able to pull cash out up to a 60% to 65% loan-to-value ratio.
Can I buy a house after filing for Chapter 7 bankruptcy?
Yes, you can buy a house after filing Chapter 7 bankruptcy, but there are important considerations to keep in mind. The ability to purchase a home will depend largely on your financial recovery and the rebuilding of your credit score following the bankruptcy process. Typically, you will need to wait until the bankruptcy is discharged and then a waiting period will apply, which can vary depending on the type of mortgage loan you are seeking.
For conventional mortgages, the waiting period is usually four years from the date of discharge. For FHA loans, the waiting period can be as short as two years, and for USDA loans, the waiting period is generally three years. It’s crucial during this time to focus on improving your credit scores, managing your finances responsibly, and saving for a down payment.
Moreover, demonstrating a stable employment history and having a low debt-to-income ratio will also enhance your chances of qualifying for a mortgage. Consulting with mortgage professionals can provide you with strategies and steps to prepare for buying a house after a Chapter 7 bankruptcy discharge, ensuring you are in the best position possible when you decide to make your next home purchase.
Who can help me file for Chapter 7 bankruptcy with no money?
If a refinance is not an option for your, the question of “How to file Chapter 7 with no money?” might come to mind, as such a question is more common than you think. At JVM Lending, however, we’re connected with many compassionate professionals who can guide you, even when funds are low. Contact us for a referral.
How do I find Chapter 7 bankruptcy lawyers near me?
Once again, if a refinance is not an option and you’re looking for a Chapter 7 bankruptcy lawyer, it’s crucial to find someone knowledgeable and local. Just search “Chapter 7 bankruptcy lawyers near me” and you’ll find a list of qualified attorneys. But before you start searching, we recommend asking for personal referrals first. At JVM Lending, we’ve built strong relationships with some of the most reputable bankruptcy attorneys in various states, from Florida to California, and we’re happy to connect you with them.
Conclusion: Is Bankruptcy My Only Option?
Bankruptcy often seems like the only path out of debt, but it’s not your sole choice, especially if you have equity in your home. JVM Lending provides alternatives like cash-out refinancing that could bypass bankruptcy altogether. Remember, the goal isn’t just to survive this financial hurdle – it’s to thrive beyond it.
At JVM Lending, we’re not just bankruptcy refinancing experts – we’re advocates for your financial recovery. We believe in creating success stories out of tough situations. If you’re facing the possibility of Chapter 7 bankruptcy and want to explore your options, reach out to us at (855) 855-4491 or contact us online here.
