New Year’s Resolutions and Bankruptcy

Now that we have entered into 2016, many Chicagoans may be thinking about their finances with regard to New Year’s resolutions. Some of us might be resolving to pay off our debts and to take control of our financial situations. Others might be thinking about filing for Chapter 7 bankruptcy in order to get a clean start for 2016. How can you know whether personal bankruptcy is the right choice for you? According to a recent article from Quicken Loans, filing for consumer bankruptcy is a not a decision that anyone should make easily or quickly. While your financial profile is likely to recover more quickly than some might have you believe, bankruptcy will nonetheless have significant short-term and long-term impacts.
Buying a Home in the New Year
If you are thinking about buying a house in the next year or two but are also considering personal bankruptcy in 2016, then bankruptcy may place limitations on your future plans. As the article explains, mortgage lenders may be “wary of working with you if you have a recent bankruptcy on your credit report.” In addition, you may not be eligible for a loan that is guaranteed by Fannie Mae or Freddie Mac. There is usually a two-year waiting period (after filing for bankruptcy) before you can become eligible for one of these loans.
In addition, mortgage loans that are insured by the Federal Housing Administration (FHA) might not be available to you in the immediate future. The article emphasizes that “the FHA makes most borrowers wait a year before they can apply for a mortgage that it insures.” Having a recent bankruptcy on your credit report can also make it more difficult—or at least more expensive—to rent a new home. Thus, even if you are not thinking about buying a home but are considering moving to a different residence, a landlord might ask you to pay a higher security deposit, or might even decide not to rent to you at all, after learning that you recently filed for bankruptcy.
Upgrading Your Automobile in the New Year
In the immediate period after filing for Chapter 7 bankruptcy, it can be difficult to secure a loan for a new automobile (or, at least, a loan with favorable terms). Primary auto lenders can reject your application, and you can end up with a car loan that carries high interest rates. In other words, if you are able to get approved for an auto loan this year after seeking bankruptcy protection, you could end up paying a lot more for it than you otherwise would.
Your car insurance, too, can go up. Auto insurers, as the article points out, “use what are known as credit-based insurance scores that help them determine how likely you are to file a claim.” If you have declared bankruptcy recently, that credit-based insurance score will likely be a lower one, suggesting to your insurer that you are more likely than other consumers to file a claim.
If you have questions about whether consumer bankruptcy is the right choice for you, do not hesitate to reach out to an experienced Oak Park bankruptcy lawyer. Our advocates are here to help. Contact the Emerson Law Firm today.
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