Debt is a reality for more and more of us with each passing year. Costs for education keep rising, as well as costs for other necessities, while incomes remain stagnant for many people. In situations like that, debt can spiral out of control, and bankruptcy might emerge as the only viable option for you. However, bankruptcy is a major step that is irreversible and has long-term ramifications for your ability to access credit of any kind in the future, especially your chances of securing a mortgage down the road.
Bankruptcy occurs when you no longer have the cash flow to service your debt – let alone pay it off. Filing for bankruptcy involves submitting a case to a bankruptcy court with the hope that a judge will declare you insolvent, which takes the heat off momentarily but brings long-term problems that you should know if you are seriously considering this step.
First of all, a bankruptcy stays on your credit report for as long as seven years. Not all debts can be eliminated even with bankruptcy – and there are significant fees just to file the case. If you hire an attorney to help you, then the costs go up even more.
How to solve the problem without declaring bankruptcy?
There are several – you can start by dumping your extra expenses. Cancel your gym membership, your Netflix, your Hulu, your Prime Video memberships. Eat at home instead of heading to restaurants. You’ll be amazed at how quickly the saved dollars will add up. What about a yard sale? If you clear out the things you have not used in a long time, such as brand-name sunglasses, purses or sneakers, as well as collectibles and furniture, you can bring in some money as well. You could consider taking on a second job to make ends meet. Rent out a room in your house, or use Airbnb to bring paid guests in when you have the flexibility to do so.
However, these steps are not enough for everyone. If you have been paying your mortgage for several years now, it is likely that you have some equity built up – enough, perhaps, to qualify for a private refinance of your mortgage. Refinancing allows you to access that equity at a lower interest rate than what you would get from starting another credit card account.
If your credit has started to take some pings from other nonpayment issues or from elevating revolving amounts in your consumer debt accounts, then you may have a tougher time getting a bank or credit union to handle your refinance. However, we at Amansad Financial have access to a network of individuals and entities looking to invest money privately in the real estate market, by providing funds to help people in your situation refinance their mortgages and access their equity.
Private mortgages are designed to last just a year or two but often involve just interest payments. The idea is that you use this time period with smaller payments to access the equity you have and eliminate some of your other debts and line up traditional financing once the private loan term comes to an end. For the short term, though, having access to your home’s equity can make the difference between some fiscal pain over the short term and the crushing long-term impact of bankruptcy.
Mortgage Refinancing After Bankruptcy
If you know anything at all about maintaining personal credit, you know that bankruptcy is akin to a nuclear bomb going off inside your FICO profile. Your score will plummet, and the bankruptcy will stay on your credit report for seven years. However, just because you go into bankruptcy doesn’t mean that you will never have access to credit again. Mortgage refinancing after bankruptcy is possible, but when you go in to talk to the lender, here are some questions you need to be prepared to answer.
Getting Mortgage Loan After Bankruptcy
1. Have you been discharged?
In the world of bankruptcy, the term “discharge” means that your bankruptcy has been finished. The reason why lenders want to know this is that if you still have an open bankruptcy, you can still add new accounts to this, including any lenders to whom you make the application. Not a lot of lenders are going to approve credit for you when you can still lump them in with your bankruptcy.
There is a big difference, though, between discharge and dismissal. If your bankruptcy gets dismissed, this is terrible news. You get the harmful effect of your score that comes with filing a bankruptcy, but you don’t get any of the advantages, because you never completed the bankruptcy. This is like paying a collection account off and then seeing that the account is still on your credit report, so your score remains the same or even drops a bit, because this newly paid account has more recent activity on it. Even with dismissal, there is hope, but the road is tougher.
2. When did your bankruptcy become discharged?
The longer it has been since your bankruptcy was discharged, the more luck you will have to get credit approvals. Every lender has guidelines for credit that are different. In the first two years after your discharge, you are still looked at as a subprime applicant. After that, you can apply for programs that are more conventional in nature. So once two years have gone by, you’ll see a lot more options come your way.
3. What is your credit history like since you went through discharge?
If you have records of late payments on the credit report after you have had a bankruptcy discharged, that really hammers your score. This is the time period that lenders will look at the most closely, so pay early or on time. Things like collection accounts since your discharge will hurt even more. If you can tell a lender that you’ve reformed your ways and paid everything on time since your discharge and can show them a clean credit report for that time period, your chances are approval are much greater.
4. What forms of new credit have you acquired since discharge?
Just staying away from credit is not going to help you. If you can set up new credit accounts after discharge, this will impress lenders. Shoot for things like a loan from your credit union or bank, a home equity loan, a student loan, overdraft protection, or a loan or lease for a car. Here’s the deal — most lenders do not want to be the first one to approve you after discharge. However, once you get one approval, the others will come later.
5. What do you have in equity?
If you’re looking to refinance a home loan after bankruptcy, the lender will look at the equity that you have, to determine whether the value of the house supports the amount of the loan you are taking out. In some instances, particularly if you are dealing with a private lender, you may have to add a bit of cash as a sweetener.
6. What are your credit scores now?
Just about every traditional refinancing lender in Canada looks at FICO scores, which means that you need to be looking at them too. For a relatively low fee, you can monitor your credit scores as often as every day if you want. Knowing where they are allows you to follow up if something hits your credit profile that shouldn’t. Creditors make mistakes all the time, and the sooner you jump on mistakes on your report and file a dispute, the more likely you are to impress a lender.
Mortgage Loans After Bankruptcy
Bankruptcy does not have to mean that you spend the rest of your life renting a small apartment. You can still call on Mortgage Lenders After Bankruptcy. While there are some more hurdles that you will have to clear to get refinancing approval, you can still pursue your financial dreams, as long as you establish discipline and settle your accounts on time. If you are considering filing a Consumer Proposal or have already filed one, and your mortgage is one of the reasons why you need to start trimming debt, talk to one of our refinancing experts at Amansad Financial. We will take a look at your specific situation and make a recommendation as to your best course of action. Many people fall behind on their debts, so don’t let that stop you from making sound financial decisions that will affect your future.