Bankruptcy Filing Makes It Tough to Get a Home Loan
Question: I am planning to buy the house I currently rent. The problem is that I am still in bankruptcy. How long do I need to wait after my bankruptcy is discharged to start the purchase? Would I suffer a high interest rate? I have been making rent payments for almost two years. Would lenders consider that?
Answer: Would you lend money to you, given your record?
Lenders consider many factors when making a loan, and chief among them is your history of paying debts. People who bail on their bills, as you did when you filed for bankruptcy, don’t tend to win lenders’ hearts.
The fact that you don’t really understand this means that you
filed for bankruptcy without taking the time to find out what it would do to your credit and the rest of your financial life.
Bankruptcy trashes your credit rating. It will make getting credit much more expensive, and will remain on your credit history for as long as 10 years. You may be able to find a lender within a couple of years that would be willing to lend you money to buy a house, but you’ll pay a much higher interest rate than other borrowers.
You also could try working directly with the home’s owner. If the owner doesn’t need money up front and is willing to trust you to make the payments, he or she could become your mortgage lender.
If not, you’ll have to resign yourself to renting--and rebuilding your credit--for a few more years. You might check out “Money Troubles: Legal Strategies to Cope With Your Debts” by Robin Leonard and Deanne Loonin (Nolo Press, 2001).
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Taking the First Steps to Living Debt-Free
Q: Your advice to the couple that was about to spend $20,000 on a wedding, when they were already $18,000 in debt, really struck a chord with me. You pointed out the huge cost of living in debt. You also said that if you have to use credit to pay for something that won’t appreciate in value, then you can’t afford it. Thank you for saying these things. You have really inspired me to get out of debt.
A: Good for you for taking the first steps toward debt-free living. You’ll find living without debt is much happier, less stressful and ultimately more rewarding than living with the crush of credit card bills.
If you want more encouragement, you can find plenty of great books on getting out of debt at your local library. One to try: “Invest in Yourself: Six Secrets to a Rich Life” by Marc Eisenson, Nancy Castleman and Gerri Detweiler (John Wiley & Sons, 1998).
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Avoid Viaticals Like the Plague
Q: I just read your advice regarding viatical investments, and it was not strong enough. Tell anyone who asks about this type of investment to run as far away as possible from viaticals and the people who sell them. I made an investment in a viatical policy and to date I have lost well over $20,000. I have reported the company to the Better Business Bureau and the attorney general’s office, to no avail. Oh, and lest you think I did this on my own--no, I went through a financial planner. He has long since moved on and has been absolutely no help whatsoever. If I could save one person from not investing in these I would consider it my accomplishment for the year.
A: Yours is certainly a testimonial to the risks involved in investing in viaticals, which are life insurance policies purchased from the terminally ill. Although there is a legitimate market in these investments, there also is a lot of fraud, as well as plenty of uncertainty about when the investments will “mature”--in other words, when the terminally ill person will die.
Your job as whistleblower isn’t quite done, however. There’s a good chance your financial advisor was licensed to sell financial products--either securities or insurance or both. You should file a complaint with the appropriate regulator.
The National Assn. of Securities Dealers regulates brokers nationally, while your state insurance department disciplines agents. Your state’s insurance department will be listed in the blue pages of your phone book, and you can contact the NASD at www.nasdr.com.
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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at money talk@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk columns, visit The Times’ Web site at www.latimes.com/moneytalk.
