A house is more than just a place to sleep at night. Whether you are a renter or own your house, you know that having a place to call home gives you peace of mind, security, and a safe haven for your family. When finances become strained, the possibility of losing one’s security is the worst-case scenario many of us jump to in our imaginations.
If you’re at a place where you are looking into bankruptcy, you are most likely wondering how your choice to file for bankruptcy will affect your ability to buy a house in the future, continue to live in your current home, or find an apartment after the bankruptcy is finalized. The experienced bankruptcy lawyers of Philadelphia at Sadek Bankruptcy Law Offices have put together a guide to help you understand exactly how your choice to file for bankruptcy can affect your living situation for both homeowners and renters.
How Bankruptcy Affects Renters vs Homeowners
Whether you are currently renting your house or are paying a mortgage on it, filing for bankruptcy offers you the chance to have a fresh start financially while still remaining in your home thanks to an automatic stay order. You can continue to live in the place you consider your safe haven while going through the Philadelphia bankruptcy process and getting back on track financially.
If you are a homeowner, you may find that your bankruptcy process looks much different than that of someone who is simply renting. A lot of it has to do with assets. Most often, homeowners will choose to file a Chapter 13 bankruptcy. This simply refinances their current bills or modifies their mortgage agreement – giving them the chance to keep their house while getting their debt under control. On the other hand, those who rent may find that a Chapter 7 bankruptcy is best suited for them. It can eliminate previous rental debt entirely or give them additional time to pay off the past rent before they are evicted.
Pros and Cons of Bankruptcy for Renters
Can You Rent An Apartment While In Chapter 7?
The answer is YES! If you’re behind on your rent a bankruptcy may be able to ensure that you can stay in your home. A bankruptcy puts a stay order in place as soon as you file, meaning that you are typically able to stay in your apartment until the bankruptcy is complete.
If you have somewhere else you can live once the bankruptcy is finalized, you may find that a Chapter 7 is your best option since it can eliminate all your past-due rent and give you a fresh start. However, if you want to stay in the same place after your bankruptcy, you can still make it possible through a Chapter 7 bankruptcy by doing away with other areas of debt, giving you more money to put toward catching up on your past-due rent. If you can pay off your past debt within 30 days, you will likely be able to remain in your apartment.
On the downside, bankruptcy can present some challenges for those who are wanting to move or find a new apartment after the bankruptcy is finalized – such as lowering your credit score. However, most people still find that the pros far outweigh the cons as they can work around future rental agreements.
Does Bankruptcy Really Hit Your Credit Score?
Yes. It does. But Chapter 7 and Chapter 13 bankruptcy aren’t the end of the world – and the hit may even be good for you. Bankruptcy stops collection calls, lawsuits, and wage garnishments. It erases debt. And despite what you’ve heard, bankruptcy may help your credit score.
Most people struggle so long with their debt that their credit is already battered by the time they file for bankruptcy. So the hit they take is not as large of a “hit” as credit card companies paint it to be. Philadelphians that have a “Fair” to “Poor” (300-669) credit score due to missed payments and debt make the smart financial choice by using a bankruptcy lawyer. And once they do, their scores typically rise, not fall. If the debt is erased — which is known in bankruptcy court as a “discharge” — scores go up even more.
Renting a Home After Filing for Bankruptcy
When you’re planning to file for bankruptcy, you may be worried about the possibility of finding apartments that accept bankruptcies in the future. While bankruptcies do stay on your credit report for as long as 7-10 years and a credit check is part of the application process, there are many things that you can do to ensure you get your next apartment. Financial strains hit most of us at one time or another – especially now with all of the displaced families due to the effects of the pandemic. Landlords are having to be more understanding as millions of renters have been affected by COVID and now have a “mark” in one form or another on their rental record. They will likely not hold it against you
By having dealt with your bankruptcy before moving, you will be showing your potential landlord that you have used the bankruptcy to get back on track and are in a financial state to be able to afford rent. In your search, you may be wondering “Where can I find apartments that accept bankruptcies near me?” You will find that smaller and privately owned apartments or rental units are going to be easier for you to approach than large apartment complexes. This is because you are dealing with an individual who is more likely to hear you out and evaluate your unique situation rather than just discard your application because of a checked box in the wrong section of the application form.
Gathering Supporting Evidence To Rent After Filing for Bankruptcy
You can prove that you can afford the apartment by showing receipts from previous on-time rent and car payments, show how your credit score has improved since filing for bankruptcy, and presenting pay stubs. Sadek Bankruptcy Law Offices additionally provides supporting letters for applicants to present to their landlords to further help in making their case and proving their financial capability. If you had to file for bankruptcy due to medical bills or a family emergency that put you behind financially, explaining these circumstances can help your potential landlord understand what happened and gives you a better chance at securing the lease,
Pros and Cons of Bankruptcy for Homeowners
If you are a homeowner, then excessive mortgage payments are probably playing a role in your financial strain. By filing for bankruptcy, you can put a stop to any foreclosure proceedings that may be in place. Meaning that you can remain in your home during the bankruptcy process. Giving you time to get your finances and life figured out in a more gracious timeline than a 10-day eviction notice. However, depending on the type of bankruptcy that you choose to file you may need to give up your home to do away with your debt.
Chapter 7 Bankruptcy for Homeowners
While a Chapter 7 bankruptcy does away with debts completely, it can also require selling property – such as your home, which you may want to keep – in a liquidation to pay off what you owe. In over 30 years of practice, Sadek Bankruptcy Law Offices had not had a client forced to liquidate an asset they did not agree to sell in the bankruptcy process. Oftentimes, when discarding one’s debts clients realize that they are living way out of their means and they can do better for themselves in their new financial start without the mortgage or expensive piece of real estate that may no longer suit their needs and new lifestyle. Other families decide that the house holds too many memories and is a precious asset to them so Sadek Bankruptcy Law Offices defend that asset and negotiate on behalf of the client with the Philadelphia court for the best outcome.
Chapter 13 Bankruptcy for Homeowners
A Chapter 13 bankruptcy is typically the best option for homeowners because it ensures that they can remain in their current home while also refinancing mortgages and other debts into more manageable payments. Under this plan, you will be making consistent payments for a period of 3 to 5 years that will then discharge any remaining debt at the end. If you have already paid off your mortgage and are debt-free on your home, then Chapter 13 is certainly the best option as it lowers other payments without putting your home at risk.
What to do if you Plan on Buying a House After Bankruptcy
If you want to purchase a home, you may feel like bankruptcy puts a damper on your dreams of becoming a homeowner. Take a deep breath. For many, bankruptcy will actually help.
Many individuals and couples go on to buy a house after they file. Instead of destroying your home-owning dreams, bankruptcy is likely the necessary step to increase your income, boost your credit score, and help you collect money for the mortgage down payment.
When Can I Buy A Home After Filing Chapter 7 and Chapter 13?
Conventional loans typically require you to wait four years after filing for a Chapter 7 bankruptcy, but government loans such as USDA mortgages, VA, or FHA loans can typically be pursued after as little as 2-3 years. If you pursue a Chapter 13 bankruptcy, your wait time for a USDA loan is only one year – while VA and FHA loans can be applied for immediately. While waiting to buy a house after bankruptcy can be frustrating, you can use the additional time to work on rebuilding your credit and gathering money for a large down payment.
Who Should Avoid Bankruptcy
Bankruptcy is a good option for both renters and present – or future – homeowners who want to lower their debt load and take back control of their finances. However, there are a few cases when one should avoid bankruptcy and look for other options to eliminate debt. If you have excessive, expensive properties such as new vehicles or an exotic home, bankruptcy is more likely to hurt than help you. In these cases, you may do best to simply sell your home and move somewhere with a lower mortgage payment or trade your vehicle in for one that is gently used.
Likewise, some credit cards will work with you to refinance your payments and lower your interest rates if they know bankruptcy is in your future. Since buying a house after bankruptcy or finding apartments that accept bankruptcies can be more challenging, you shouldn’t file if you are looking to change your living arrangements within the next few months without first doing some extensive work on your budget and evaluating your debts. While some people may find that bankruptcy is unnecessary and they can handle debt with some simple lifestyle changes, the majority of individuals who file for bankruptcy discover that bankruptcy was the best option to get their finances back on track.
Consulting with an experienced bankruptcy attorney will help you best evaluate your unique situation and whether bankruptcy is truly the best solution for your case. A Philadelphia bankruptcy lawyer will be able to listen to the details of your financial situation and discuss if there are better options for you like mortgage modification or negotiating with your credit companies, or if you can benefit from having your debts discharged in a Chapter 7 bankruptcy.
How to Get Started on the Bankruptcy Process
If you are a homeowner struggling to keep up with mortgage payments, or if you are simply behind on your rent payments, the bankruptcy process is an effective process that eliminates debt, helps you on the path to rebuilding credit, and opens doors to a brighter tomorrow. Our team of legal experts can show you if bankruptcy is right for your specific situation and help you get started on filing your case. We will talk over the differences between a Chapter 7 and a Chapter 13 bankruptcy and determine which one will make it easiest for you to lower your debt load while still making it possible for you to rent or buy a house after the bankruptcy is complete.
Contact our offices today to learn more about bankruptcy and set up a free consultation. We will help you discover the best financial path to follow to set you free from debt!