Bankruptcy is something that every individual in real estate dreads. It is surprisingly accurate that some investors find themselves in this situation. People who file for bankruptcy have debt, and they do not see the situation changing anytime soon. However, when someone declares bankruptcy, it does not necessarily mean that you cannot keep your home and other properties. Read on to see how bankruptcy can affect your real estate.

1- New House After Bankruptcy

In the financial society, bankruptcy can be very unfortunate. Bankruptcy can block the use of credit cards to borrow money, which can take years to rebuild. In most instances, it takes two years of waiting time before applying for a mortgage. It is advisable to be patient until this time lapses so that the interest rates can get to a more desirable level.

With proper planning, buying a home is a possibility. For starters,  rebuild your credit score so that the banking institutions will trust you. Use secured credit cards so that you can set a limit. Make monthly instalments if you take a loan to make it easy and fast to clear the loan.

2- Loans on Bankruptcy

When you declare bankruptcy, it can profoundly impact your real estate investments. It is necessary to sell off the house to clear the debts. However, the owner of a home does not have the power to sell the house. When bankruptcy is declared, the property immediately falls under bankruptcy estate. You can keep the property if it is in the state or does not exceed the exemption amount. However, if it exceeds the amount, the trustee will sell your property and give you money that fits your exemption amount.

3- Seller with Equity

If a seller files bankruptcy and has a stake in his house, it can be of benefit to the broker. The owner can stay in the property while working on the bankruptcy to give the broker time to list the property and close the deal with a buyer. The debtor has an advantage of automatic injunctions of foreclosure, lawsuits, bank levies, mortgage or rent.

It is helpful if the debtor is limited to collection action from creditors. However, this amount of stay is limited, and as soon as the period is over, you are supposed to surrender your property to the bankruptcy estate at a lesser value.

4- Bankruptcy is Not Free

Many people are not aware that filing for bankruptcy is not free. In case you have declared bankruptcy, you have to contact your lawyer immediately and get to know the necessary steps to follow. Majority of these lawyers demand hourly payments, which can be costly if your case is complicated. There are other extra costs such as court, travel, and filing charges.

5- Debts Don't Disappear After Bankruptcy

Filing for bankruptcy will not solve all of your financial problems. The creditors are legally allowed to refuse to discharge the debt. If they win, you have to work out a plan on paying their money. The amount of money you earn will be used to restructure payment of your debt. Your income is essential when filing for bankruptcy.

6- Privacy

When you declare bankruptcy, it will be on record for seven to ten years. The public can access your bankruptcy history. It may be difficult to get a bank that is willing to give you money to invest in real estate. The bank can opt to close your accounts. However, if you improve your credit ratings in a span of two years, it will be easier to access loans. In case you have declared bankruptcy, there are smaller banks that are willing to welcome you in opening accounts.

7- Increased Risk of License Cancellation

If you file for bankruptcy and you have a lease that is expired or a contract from an executor, the bank trustee may terminate the agreement or the rent. It takes 60 days for the trustee to include unexpired lease or contract from the executor as part of the estate or reject either of them. In case the contract or lease cannot generate funds for unsecured debts, there will be a dismissal. However, if you give your creditors a written notice and they agree, you have a right to assume the lease on your property.

Heather is a contributing writer for Wages & Benham.  In her spare time, she enjoys listening to music and spending time with her cat.

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