Bankruptcies shouldn’t be seen as a failure; they actually represent new opportunities for Texas debtors. Bankruptcy is a tool that allows debtors to wipe the slate clean and start over again. Of course, it can have some impacts on a person’s credit, which is an important thing that all adults should understand.
The basics of bankruptcy
Chapter 7 and Chapter 13 are the two most common forms of bankruptcy. These are named after the parts of the legal code. Chapter 7 bankruptcy operates by liquidation. In this type of filing, a person’s assets are sold. The proceeds from the sales are applied to debts. When all the money is gone, the remaining debts are discharged.
Chapter 13 bankruptcy is different and involves a payment plan. People with steady income make a plan to repay their creditors. When it’s approved by the court, they typically have three to five years to make good on it. Sometimes, they agree to pay back all of their debts. Other times, it’s just a percentage.
Getting a mortgage post-bankruptcy
After a bankruptcy, it can take a few years to rehabilitate credit. It can be difficult for people to rent or buy a home because bankruptcy can stay on a credit report for 7 to 10 years. However, the waiting period to apply for a mortgage is much smaller. After Chapter 7 bankruptcy, people can apply for an FHA or VA mortgage after just two years. For Chapter 13, the waiting period is just one year after filing to apply for USDA, FHA or VA mortgages. The waiting times for conventional home loans are longer.
An attorney with experience in bankruptcy law may be able to help answer an individual’s questions about the effect that bankruptcy will have on their credit. An attorney may also help an individual decide whether to file for Chapter 7 or Chapter 13.