Friday, May 29, 2015

Bankruptcy: A decision with strong ramifications

I encounter a number of calls/emails from people who have declared bankruptcy and are looking for financing. Although there are mortgage solutions for these people, they are almost always more expensive than it is for people who have not declared bankruptcy.

I have seen people declare bankruptcy for amounts under $10,000, to over $100,000. I have seen people who are 25 years old declare bankruptcy and people in their 50’s and 60’s do so. The stigma is still the same: Whatever the reason for it, people cannot and will not accept responsibility for their debts. I understand some people have no choice, but at the end of the day, it affects your ability to buy a home in the near future.

If you have had a bankruptcy and have been released, the first thing you should do is to get a secured credit card with a $1000 limit. Once this has been open a few months, get a second card with the same limit. Use both sparingly, making sure to use each one every month. Using two cards at the same time, and keeping the balances low, will assure your credit improvement. 

NEVER MISS A PAYMENT ON THESE CARDS OR THERE IS A GOOD CHANCE YOU WILL NOT BE ACCEPTED FOR CREDIT/FINANCING AGAIN!

Typically banks want to see you released from bankruptcy for one year, with a year of re-established credit on one or two cards. Since different banks have different policies on this, it is impossible to give you a strict answer. Once you have re-established your credit, you can re-apply with me to a regular chartered bank. Should you require a mortgage, and you were given poor advice, chances are you do not have re-established credit. In these cases, I have lenders that will go up to 85% of the value of the property. This means you need at least 15% as a down payment for a new home purchase. The rates are higher, but the only requirement is that you have proof of a bankruptcy release.


If you are thinking of declaring bankruptcy, look at all your options first. Do you have family/friends that can help bail you out? Most people don’t see the stigma and effects of a bankruptcy until afterwards. They are in a very vulnerable time and their bankruptcy trustee may not be giving them honest advice on what effects the bankruptcy will have. It is important to do your research and find a trustee that will explain the process to you, and may even suggest some alternatives. 

I work with a trustee that has an excellent reputation, so if you need any advice on this topic, please let me know and I would be happy to help.