How Bankruptcy Affects Your Home Loan in South Carolina

Filing for bankruptcy can have a significant impact on various aspects of your financial life, including your home loan in South Carolina. Understanding how bankruptcy influences your mortgage can help you make informed decisions and plan for the future.

When you file for bankruptcy in South Carolina, it becomes a public record, which can affect your credit score. Depending on the type of bankruptcy you file—Chapter 7 or Chapter 13—the implications for your home loan can vary considerably.

Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, also known as liquidation bankruptcy, your non-exempt assets may be sold to pay off your creditors. However, many homes are protected under state exemptions, which can allow you to keep your house. In South Carolina, the homestead exemption can protect up to $60,000 ($120,000 for married couples) of equity in your primary residence.

If you are behind on mortgage payments when you file for Chapter 7 bankruptcy, the lender may still pursue foreclosure once the bankruptcy is discharged. Filing for bankruptcy will put an automatic stay on collection actions, temporarily halting foreclosure processes, but it doesn’t eliminate the mortgage debt.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves creating a repayment plan to pay off your debts over three to five years. This type of bankruptcy can be more beneficial for homeowners who wish to keep their homes, as it allows you to catch up on missed mortgage payments over time while retaining your property.

In South Carolina, you can propose a plan to pay off the arrearages over the duration of the payment plan. However, it is crucial to continue making your regular mortgage payments, as failing to do so can lead to the lender seeking relief from the automatic stay to proceed with foreclosure.

Effects on Your Credit Score

Both Chapter 7 and Chapter 13 bankruptcies will negatively impact your credit score. A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, while a Chapter 13 bankruptcy can remain for up to 7 years. This decline in credit score can make obtaining a new mortgage more challenging.

Rebuilding After Bankruptcy

Once you’ve gone through bankruptcy, rebuilding your credit is essential. Start by making consistent, timely payments on any remaining debts and consider getting a secured credit card to help improve your credit score.

After waiting some time, many people find that they can qualify for a mortgage again. In South Carolina, borrowers may be eligible for a new mortgage as soon as two years after a Chapter 7 bankruptcy and just one year after a Chapter 13 bankruptcy, provided they meet certain conditions.

Consulting a Professional

Given the complexities involved in bankruptcy and its impact on home loans, it is wise to consult a financial advisor or a bankruptcy attorney. They can help guide you through the process, answer specific questions related to your situation, and provide tailored advice on how to protect your home and financial future.

Understanding how bankruptcy affects your home loan in South Carolina is crucial for making sound financial decisions. By being informed and seeking professional help where necessary, you can navigate this challenging period with greater confidence.