Getting a Mortgage after Bankruptcy: Is It Possible?
The bankruptcy process takes its toll on your creditworthiness.
Following the date of bankruptcy, most creditors will not lend to you.
But what about getting a mortgage after bankruptcy?
Is that likely or not?
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Getting A Mortgage After Bankruptcy
When you file for bankruptcy, the trustee must recover as much debt as possible for your creditors.
For that reason, they will sometimes investigate whether they can use the equity you’ve built up in your home (from paying off your mortgage) to repay the debt that you owe.
Equity is the difference between the market value of your property and the amount that you owe your mortgage lender.
If you have a substantial amount of equity in your property, the trustee may allow you to keep living in your property, so long as you keep making repayments to the mortgage provider.
Hence, you can continue paying off your existing mortgage, even after you file.
Even if you don’t have a lot of equity in your property, the trustee may allow you to keep your property if you use it to contribute to your bankruptcy estate.
Often, this means taking out a second mortgage to cover the cost of repayment – something that banks may be willing to do if you have a good repayment history with them.
(You may also want to consider using bankruptcy mortgage lenders).
Can You Renew A Mortgage After Bankruptcy?
Mortgages are a form of secured debt.
Thus, even if you can’t make repayments, the lender still has collateral – the sale price of the house.
Many banks, therefore, are willing to renew mortgages with you, even if you go bankrupt.
The reason is that they can always repossess your property and sell it on if you fail to make mortgage payments.
Furthermore, banks have an incentive to provide those who go bankrupt with mortgage renewals.
When they foreclosing on a property, they must put the property on the market for a discount.
Refusing to lend to you, therefore, could mean that they lose money, on both the interest you pay over the lifetime of the mortgage and the reduced value of the property.
Most people who go through bankruptcy, therefore, continue with their existing mortgages.
You may still want to discuss the issue with your lender to get their confirmation.
Usually, they will agree to renew if your payments are up to date.
Can You Buy A House After Going Bankrupt?
Finally, many people investigating bankruptcy options want to know whether they can get a mortgage on a house in the future.
To get a mortgage after bankruptcy, you need to do two things:
You can get a mortgage two years after discharge, provided that you have worked to improve your creditworthiness (by using other means to improve your credit score).
If you’d like to discuss bankruptcy further, get in touch with us today.
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?