When you obtain mortgage, you commit yourself to making timely payments. Continually missing payments can have serious consequences. And if the outstanding loan becomes much of a struggle to pay-off, the bank can run after your property and foreclose it. They will sell your property (usually through auction) and any proceeds will then be used to pay off your loan.
If this happens, you may think of options to keep your house. If you think you cannot afford to pay your payments for now, you may ask your lenders to temporarily hold your payments and give you other repayment options. If your mortgage becomes too expensive because of inflating rates, you may opt to refinance. However, there may come a time when these options are no longer feasible (not even with short sale). When this happens, bankruptcy may come across your mind.
But before jumping to this option, one should think deep and hard before filing bankruptcy. If you file for this and plan to get a new house sooner, this may not be possible. Bankruptcy has serious effects to your ability to obtain a house; even if you plan to rent. It can also affect your ability to get employed. Hence, filing for bankruptcy can only be done if all other options have been exhausted.
Bankruptcy can lower your credit scores. In United States, credit scores have bearing on many things. Having bad credit scores makes it harder for you to obtain a loan like mortgage. For some, they can get a loan but interest rates are really expensive; thus, making it even more difficult to pay back. And take note, getting approved for mortgage even with expensive interest rates would not happen right after you have filed for bankruptcy. It could even take years depending on the lender. But other says you can get mortgage after 2 years but as mentioned above, rates are sky-high.
This is how bankruptcy can affect your ability to purchase a home: through your mortgage. Good for you if you can afford to pay your homes in cash. That shouldn't be a problem. But most people rely on mortgage to make their purchase. If bankruptcy is on file, rejection is inevitable. And you may have to hold back on purchasing homes. If rates are low and the housing market is favorable to the buyer, you may have to forego this opportunity.
Bankruptcy is reflected on your credit report for 7 to 10 years, depending on the type you filed. So expect for years, you credit scores wouldn't look attractive for lenders. However, your dream of purchasing a home should not stop there. As they say, in 2 years time (from the discharge of debt) you can already obtain a mortgage. For you to get better deals than what is expected, you must be able to rebuild your credit within that span of time.
Bankruptcy is an opportunity for people to renew their credit. It wipes out the old debt to be able to start new. But you really do not have to wait for 7 or 10 years to get a new loan. If you really want to pursue your dream of owning a house, rebuilding credit is the only the answer. There are many ways to do it. You can get a secured debt. Obtain loans from creditors, who accept the recently bankrupt. However, one must ensure that payment is done on-time and that any payment activities made shall be reported to the major credit reporting agencies like Experian, Equifax and Transunion.
After doing these things, a new life with new loans will begin. And sooner or later, you will get back on track; getting new credit cards and making major purchases through loans. But this time, with better rates and better deals.