Life After Bankruptcy

FHA Trims Waiting Period for Borrowers Who Experienced Bankruptcy

2013 August 20 by

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.

Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.

For borrowers who went through recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond their control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.

Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.

According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.

The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016.



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Refinancing Your Home Mortgage After Chapter 7 Bankruptcy

2013 April 9 by

As a Denver bankruptcy lawyer, I have been receiving multiple calls from clients who filed bankruptcy a few years ago who are now eligible to re-finance their current mortgage or purchase a home.

The mortgage lenders and brokers frequently ask my clients “Did you reaffirm the mortgage?”

Wells Fargo, in particular, has been offering our past clients refinancing of their mortgage only to deny it later because a reaffirmation agreement was not filed in the bankruptcy case.

Wells Fargo tells our clients that they’ll approve them for a re-finance if they will file a reaffirmation agreement in their two-year-old chapter 7 bankruptcy case. Unfortunately, this is not an option. Once the bankruptcy discharge has been issued by the court, the court cannot approve a reaffirmation agreement.

Our solution: If you cannot re-finance with the mortgage lender you had when your bankruptcy was filed, apply with a different lender.

Our contacts at First Option Lending have recently told us that an individual who filed chapter 7 over 2 years ago is eligible to re-finance their mortgage now if they have not missed any mortgage payments and otherwise qualify. You don’t need a reaffirmation agreement to re-finance if your have a stellar payment history and your income is steady and verifiable.

It is common practice for bankruptcy attorneys to advise their clients to not reaffirm their mortgages and other debts. A Reaffirmation Agreement is an agreement made between the debtor (our client) and a creditor (like Wells Fargo) to agree to pay a debt that would otherwise be discharged (forgiven) by the bankruptcy.

The agreement is a court-approved new post-bankruptcy contract with the creditor. It gives back the lender the right to sue our clients (including wage and bank garnishment) if they default in the future.

How can a bankruptcy attorney advise his client to put himself or herself in that situation? Especially today when an astounding number of homes are underwater and the economy is so uncertain.

The benefits of signing the reaffirmation agreement are outweighed by the risks.

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2012 February 16 by

As we covered in the February 2011 Bankruptcy Law Professionals in Bankruptcy Myth #1, filing for bankruptcy does not necessarily hurt your credit. The bankruptcy will be reported on your credit file for up to 10 years. Bankruptcy gets rid of or manages your debt, so it should be considered the first step in rebuilding your credit. Here are five steps you should take to start repairing your credit after filing for bankruptcy.


If you don’t have a recent copy of your credit report, get one from a reputable online source such as Annual Credit Report – it should be free once a year. If you see any errors, work on disputing that information directly with the companies. And make sure any debt that was part of your bankruptcy case is designated with a “BK” notation. Remember that you must exercise some patience here. It can take several years for your credit slate to be completely clean. You didn’t become bankrupt overnight, so you can’t recover it from it that quickly either.


It’s time to get some positive credit activity going on your credit report to show that you are responsible and are ready to pay bills on time. You likely won’t get great offers and will have to pay higher interest rates, but you’ll use the cards sparingly. Consider making one small purchase a month, like a tank of gas, then pay it off with each bill. Don’t ever max them out, as your credit score goes up or down based on your ratio of outstanding credit to available credit.

You might start with your bank – ask if they have a “collateral” card program, which means you put money into an account up front and card purchases are taken out of that. It’s low-risk for the bank, but can help you improve your credit score.


Talk to your bank or credit union about getting a small loan, such as $500. These loans do have high interest rates, but they offer you an opportunity to pay them back in monthly installments, which looks good to creditors. Be very diligent about making payments on time. Consider setting up automatic payments that come directly out of your checking accounts at a set time each month.


This might seem like an odd step to take, but you cannot afford to have anything else major go wrong with your finances. An identity theft could be detrimental to your credit recovery. eHow Money has a helpful article on comparing identity protection programs, which is an excellent place to start.


It probably goes without saying, but a major part of recovering from a bankruptcy is to avoid getting right back into old ways. Look into one of the free online services that help you set budgets and goals, like After some set-up on your part, Mint will automatically update with real-time bank account and credit card information, so you can see exactly where you’re spending. You can enter monthly budgets and it will send you alerts if you’re getting too high in a category. Mint also helps you set up Goals, such as paying off credit cards, buying a car, or paying off a loan.

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Bankruptcy And Financial Aid

2011 June 10 by

If you’ve filed for bankruptcy or are contemplating it, you may be wondering how it will affect your ability to get student loans and other financial aid. The good news is that there are still options available for borrowing money after bankruptcy. The bad news is that it’s a bit more complicated with a bankruptcy situation. Here’s the scoop on the different types of financial aid and how they’re affected by bankruptcy.


Federal loans, such as Stafford and PLUS (loans for parents), are the largest providers of financial assistance for higher education. Because the government encourages higher learning at colleges and universities, these programs are still available to those who have filed bankruptcy.

There are two subcategories within the federal assistance bucket – grants and loans. Grants are need-based or merit-based scholarships that don’t have to be repaid. They are based on either a special achievement of some type, such as academic excellence or athletic skill, or based on household income or hardship. Loans have to be repaid, but have lower interest rates and more flexible repayment schedules.

The good news is that bankruptcy is not a factor in receiving grants and loans from the federal government, providing your criminal record is clear. Your credit history and income are not factors in being approved for federal loans. However, if you’ve defaulted on a school loan in the past, this could affect your chances for receiving another loan.

A good place to start seeking federal assistance is filling out a Free Application for Federal Student Aid, or FAFSA. The FAFSA allows the school and the federal government to determine what kind of financial aid you are eligible for.


Unfortunately, private loans may not be an option for financial assistance after a bankruptcy. These programs are not regulated by the government and therefore have stricter criteria for approval. Private lenders typically look at whether there has been a bankruptcy within the past 10 years and may deny based on that.

A few exceptions exist, such as if the bankruptcy was the result of a natural disaster or extraordinary medical costs. And if the parent has filed bankruptcy, this should not affect on their child’s eligibility for private financial assistance (as long as parents are not cosigning).

Lenders also look at payout plans. Borrowers who filed for a Chapter 11 or Chapter 13 and had a payout plan will be more likely to get a private loan than borrowers who filed a Chapter 7. Lenders also look at whether the borrower is able to refile for bankruptcy – making Chapter 7 filers more attractive because they are unable to immediately refile.

Your first phone call should be to the financial aid department of the school you (or your child) plan to attend. It is not uncommon for bankruptcy filers to seek financial assistance and the experts will know the best options for your specific circumstances.

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Bankruptcy Myth #11: Filing for Bankruptcy Will Hurt Your Credit

2011 March 17 by

That’s not true. Think about it. By the time you come to a bankruptcy attorney, your credit is already either messed up or maxed out. And if it’s already messed up or maxed out, how can bankruptcy hurt it? The big surprise for my clients is when I tell them that filing bankruptcy can actually help them re-build their credit. Continue reading »

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Bankruptcy Myth #9: Only Deadbeats File for Bankruptcy

2011 March 17 by

Not true. Most of the people who file bankruptcy are good, honest, hard-working people…just like you and me…who file as a last resort…after months or years struggling to pay the bills that were left over from some life-changing experience, such as a divorce, the loss of a job, a failed business venture, a serious illness, or some family emergency…or because they honestly and mistakenly fell into debt at a young age before they knew better… before they knew anything about budgeting or how to manage money.

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Tips on Getting a New Car After Bankruptcy

2011 March 16 by

One of the hardest purchases to make after filing for bankruptcy can be a car. But sometimes you simply need reliable wheels — whether it’s to replace a vehicle in need of expensive repairs or to use as transportation to and from a new job. And buying a car and making payments on time can be an excellent way to improve your credit. Continue reading »

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Is Bankruptcy a Taxable Event?

2011 March 15 by

Bankruptcy is not a taxable event, per IRS Publication 908. The protection you receive from creditors after filing bankruptcy applies to the IRS as well. So the amount of discharged debt cannot be considered part of your income, which would normally be taxable.The IRS states “Generally, when a debt owed to another person or entity is canceled, the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income.”

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Denver Family Fun on a Budget

2011 March 11 by

If your family is on the lookout for ways to stay entertained without spending a bundle, you’ll appreciate these ideas:Groupon — a daily coupon with big savings on movies, restaurants, sporting events, outdoor activities, shopping, and more. Sign up for daily email coupons.LivingSocial Denver Family Edition — family-friendly deals at local zoos, museums, aquariums, art classes, and more. Sign up to receive emails with great coupons. Continue reading »

The Lighter Side of Money Problems

2011 March 8 by

Although it may not seem possible to laugh about having financial problems, it might be a healthy release and a good coping skill. It never hurts to laugh at yourself – it helps you get through it, improves your blood flow, releases endorphins, and reduces stress. For a funny take on financial troubles , check out the movie Fun with Dick and Jane. Continue reading »


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