Bankruptcy & Mortgages: All You Need To Know

Bankruptcy can happen to anyone. In our experience, most people are declared bankrupt due to an event largely beyond their control, such as divorce, job loss, illness or loss of income. It only takes one tragic event for debts to mount quickly. At Create Finance, we recognise that even if you have been declared bankrupt, you have the right to apply for a mortgage. With access to a comprehensive range of lenders in the mortgage market, we can explore products from mainstream and specialist lenders with exclusive rates.

Getting A Mortgage After Bankruptcy

If you’re wondering if you can get a mortgage after bankruptcy, you will find that lenders will review your current financial situation before offering you these types of products. However, this doesn’t mean that your application won’t be successful and there are ways in which you can help give yourself the best chance of a positive outcome.

It is unlikely that you will be able to take out a standard mortgage deal, since many of the traditional high street lenders won’t consider anyone with bankruptcy in their credit history.

There are specialist lenders out there who may be able to help, however. Regardless, you may find that you need a much larger deposit and you may be charged a higher rate of interest than borrowers with good credit scores.

You will need to have been discharged from bankruptcy for at least one year before lenders will consider your application. In some instances, lenders may allow the application process to begin before the first year post-discharge comes to an end, but you will not be able to complete the application until the 12 months is up.

The longer you’ve been discharged from bankruptcy and the improvements you make to your credit score will increase your chances of being offered better interest rates.

You can consider waiting six years after bankruptcy discharge to apply for a mortgage, as the bankruptcy will no longer show on your credit report and you’ll have had time to improve your credit score. In this instance, you could consider applying for a traditional mortgage.

How Long After Bankruptcy Can I Get A Mortgage?

In terms of how long it will take after bankruptcy to be able to get a mortgage, there is no fixed amount of time and it will largely depend on the lender in question.

Some lenders may require you to have been discharged from bankruptcy for at least 12 months, while others may require years. Conversely, other lenders may be happy to approve you for a mortgage immediately after discharge - and a new provider has just come to market that specialises in cases such as this, which could increase your chances of success.

The longer you wait after discharge the more likely it is that your application will be approved, however, so you may want to consider waiting until the bankruptcy no longer shows up on your credit report - which will take six years.

If bankruptcy does still show on your credit report, it is likely that your lender will expect you to have a large deposit. This may mean it takes longer for you to be approved for a mortgage.

However, a new lender has just come to market that accepts applications from would-be borrowers on day one of discharge with a 15% deposit, which may prove beneficial for many in the future.

Do You Have To Declare Bankruptcy On Mortgage Applications?

Although your financial situation will show up on your credit file for six years after you are discharged, you will still need to declare bankruptcy on a mortgage application. Bear in mind that providing false or misleading information on your application will be considered fraudulent.

You may be tempted to include incorrect information on your application, but it is unlikely that you’ll be able to cheat the system and it’s important to remember that it is illegal to do so.

Mortgage fraud penalties can include fines or suspended sentences, although the worst case scenario is a ten-year custodial sentence for lying on applications.

How Does Filing For Bankruptcy Affect Your Current Mortgage?

If you’re already a homeowner and struggling financially, it’s important to know the facts and if you’re asking yourself, “does bankruptcy affect your mortgage?”, you’ll find that the answer is yes.

Although there are procedures of due process in place, you will not automatically lose your home if you decide to declare bankruptcy.

If you file Chapter 7 bankruptcy (which is known as total bankruptcy), your property will be either deemed exempt or non-exempt. If it’s non-exempt, you will have to surrender the property or pay its value as part of the bankruptcy. Under Chapter 7, you don’t have to pay the mortgage but you will likely lose the house because the lender still has a right to the property.

If you file Chapter 13 bankruptcy, you file a plan with the courts that sets out how creditors will be repaired. You will be required to pay some debts in full and others partially or not at all, depending on what is affordable. In the majority of cases, an automatic stay is issued with Chapter 13 bankruptcy, which means creditors have to stop all collection efforts.

What Happens To Your Home If You Go Bankrupt?

It is natural to worry that you will lose your house if you go bankrupt, but it’s important to remember that this may not happen and you can go bankrupt and keep the house. It depends on your individual circumstances and the official receiver will take various factors into account when making a decision.

If you rent your home, it is unlikely that it will be taken from you if you file bankruptcy because you must be left with sufficient funds to pay your rent. Landlords are also not typically informed about bankruptcy proceedings unless you’re in rent arrears.

If you own the property, the official receiver may require it to be sold to help settle your debts. You may be able to stop this or delay the sale if someone else has a legal right to the property, if someone buys your share of the house or if your mortgage covers the majority (or all) of what the home is worth, which is known as low or negative equity.

Can You Get A Mortgage If You’re Currently Bankrupt?

Unfortunately, if you’re wondering if you can get a mortgage if you’re bankrupt, you will find that you are unable to apply for these products until you’ve been officially discharged. This typically takes 12 months, although it can be less in some instances.

Once you’ve been discharged, lenders will start to consider you for a mortgage and your chances of success increase the more time that passes.