Of course. Most people have the
misconception that they will not be able to buy a house or
car for ten years after receiving a chapter 7 discharge.
This is far from the truth. A lender reviews many factors
when deciding whether or not to extend credit. Although it
is true that a bankruptcy filing will appear on your credit
report, often times receiving the discharge of debts
improves your credit-worthiness. Lenders look at two
factors: 1. Your asset to debt ratio and 2. Your income to
expense ratio. First let’s examine the asset to date ratio.
A mortgage lender does not want to see a lot of credit
cards and loans on a credit report because if you owe a lot
of creditors money, it will be more difficult for you to
pay the mortgage. Also, if you fail to pay these other
bills and judgments are obtained against you, these
judgments become liens on the house which impair the
mortgagor’s interest in the property. Now on the income to
expense ration aspect, if you are paying $500.00 per month
to various credit card companies as monthy payments, that
decreases your monthly disposable income which may make it
difficult to pay your mortgage.
Here’s an example: Ted and Sue want to purchase a house.
Ted has $10,000.00 in credit card debt and pays $300.00 per
month total for all his cards. Sue has $14,000.00 in credit
card debt and a $3,000.00 personal loan. Sue has been late
on her payments and has a history of 90 days over due on
her credit report. The minimum payments on these debts is
$400.00 per month. Ted and Sue both work and bring home a
total of $4,000.00 per month. Ted and Sue both have car
payments that total $800.00 per month.
Bob and Mary received a chapter 7 discharge and now they
also want to purchase a house. Bob and Mary only have one
credit card which they use for emergency purposes and the
credit card has a balance of $200.00. Bob is employed and
brings home $3,000.00 per month and Mary is unemployed. Bob
and Mary have used cars worth about $3,000.00 each that are
paid in full.
Bob and Mary have no debt and no late payments on their
credit history. Even though they have less household
income, they have more monthly disposable income.