You can rent a home after bankruptcy
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Sometimes allowing a foreclosure to go through without a fight is smart. For instance, if you have no equity in your home and are upside down to the extent that you have negative equity, it may be wise. Also, if you're behind on your mortgage payments and even when you catch these up, won't have any equity, it may be best to let it go. That being said, the idea of giving up your home is frightening. You may see losing your house as a sign of failure and worry that you will be left with nowhere to live.
However, a well-timed bankruptcy can give you time to save up money to move, and you should have no problem renting a house or apartment. Today we'll take a look at strategies for getting your finances ready for a rental and what to be prepared for when you apply to rent a property after you file bankruptcy. Chapter 13 bankruptcy allows you time to catch up on back mortgage payments and can be a good strategy to protect your home from foreclosure if you have equity.
When foreclosure is a smarter solution
But if you have no equity, a Chapter 7 bankruptcy may be a better way to go. Once you file a Chapter 7, any foreclosure efforts will stop for approximately 90 days. During this time, you will also get immediate relief from other unsecured debts like medical bills and credit cards. All of the money you were spending on rent, homeowner's insurance, and your unsecured bills can be put toward savings so you can move into a new place once the foreclosure takes place.
And, the lender may not refile the foreclosure for months to come. This is the time you need to squirrel away as much money as you can. You'll need a down payment on a new place to live and cash to cover the cost of your moving expenses and any utility deposits. Take advantage of these rent-free months to save, save, save. Even once the foreclosure auction occurs, it may be one to three months (or even more) before the purchaser takes possession of the property.
When it's smart to wait for an eviction notice
The best scenario is to remain in the home until the purchaser sends a notice to vacate if you have a homeowner's association. You will be responsible for property upkeep and fees until the title transfers to the new owner and staying in the property makes this easier for you to handle. Any HOA fees that were accumulated and unpaid up until your Chapter 7 will be wiped out by your bankruptcy. But new fees and fines between the bankruptcy and the title transfer will remain on you.
HOA rules mean you need to keep the lawn maintained, make sure the property doesn't fall into disrepair and pay any monthly fees. If there is no HOA, you can make plans to move as soon as the foreclosure auction takes place. But you may want to make arrangements to keep the lawn mowed until the purchaser takes possession while you're still listed as the title owner to prevent municipal complaints against the rundown state of the property.
How to get a rental property after bankruptcy
When you do go to rent, a landlord may want to run your credit history prior to renting which means they will see your bankruptcy. Be ready to explain why you chose to file bankruptcy – whether you had a bout of unemployment, you had an illness that caused medical expenses or a divorce that caused money problems. Explain that now that you have a fresh start, you're financially able to meet your obligations.
Another reason to save up money is that you can offer to pay a couple of months of rent in advance to convince the landlord to contract with you. You may have to shop around to find a lessor that will work with your credit circumstances, but you will be able to find someone. You may have to pay a more substantial security deposit. And you likely won't get as much of a grace period if you run late on your rent, but you should be able to find a rental property after bankruptcy.
The worst thing you can do is to stick with a house that you can't afford and keep pouring money into it and falling behind on your other bills. Cutting yourself loose from an upside down mortgage, filing bankruptcy and renting while you rebuild your credit is a smarter strategy. Then, when your credit score bounces back, you can purchase a home again and start to build up equity without being in over your head.
To find out more about how bankruptcy can help you get out from under a mortgage that costs more than the property is worth, contact the law offices of John T Orcutt today. Call +1-919-646-2654 to speak to one of our North Carolina bankruptcy experts in a free consultation at one of our offices in Greensboro, Raleigh, Fayetteville, Wilson, Garner or Durham.