Bankruptcy

Bankruptcy

Bankruptcy is a legal process that allows individuals who are unable to repay their loans to eliminate or restructure their debt obligations. Depending on the specific circumstances, filing for bankruptcy can help establish a plan to repay debts or allow for the complete discharge of those debts.

As a potential homebuyer, it’s essential to understand how different types of bankruptcy can impact your mortgage situation.

  • Chapter 7 Bankruptcy: This type, also known as liquidation bankruptcy, entails the forgiveness of most debts, but it may require the liquidation of certain assets, including property, to repay some creditors. In this case, your home may be categorized as either “exempt” or “non-exempt.” If it is deemed exempt, you can retain ownership. However, if it is classified as non-exempt, it must be sold, or you may need to pay its value in cash to keep it.
  • Chapter 13 Bankruptcy: This option allows individuals to propose a repayment plan to manage their debts. When filing for Chapter 13 bankruptcy, you present a plan detailing how you intend to repay certain debts over time, either in full, in part, or not at all, based on what you can afford. In this scenario, you do not lose ownership of your property, as the mortgage payments are incorporated into your repayment plan.

It is important for borrowers to approach bankruptcy with caution due to its significant consequences. Filing for bankruptcy can negatively affect your credit score, making it challenging to secure approval for future mortgages, loans, or even credit cards. Understanding these implications is crucial for making informed financial decisions.

Property Tax

Property taxes are paid to the local government where your house is located. The amount varies based on the area and property type.

FHA Handbook

FHA home loans have specific rules that lenders must ensure the loans are insured by the U.S. government. Rules compiled in a reference book called HUD 4000.1

Fixed Rate Mortgage

A fixed-rate mortgage has an interest rate that remains constant for the loan’s duration. This means your monthly payments won’t change, simplifying budgeting.

Equity

Home equity is the portion of your home that you own. It increases as you make mortgage payments, showing you own more of the property over time.

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