Financial Recovery Times for Short Sales and Bankruptcies

Here's some neat information I received from the CRS205 Finance class I attended in February regarding the recovery time for homeowners who are involved in a short sale, foreclosure or bankruptcy.

Being involved with any of these will affect your credit. It may prevent you from seeking additional credit or require you to make a higher downpayment or pay a higher interest rate until after these timeframes, especially if you wanted to buy another house:

• If the homeowners file a Chapter 7 bankruptcy this remains on their credit report for four years from discharge or dismissal.
• If the homeowners file a Chapter 13 bankruptcy this would remain on their credit report for two years from discharge or four years from dismissal.
• If the homeowners have filed multiple bankruptcies the credit report would be affected for five years after discharge or seven years from dismissal.
• If the property is foreclosed this would remain on the credit report for five years from completion and you would be required to make a 10% downpayment and qualify with a 680 credit score (can't qualify for a second home or investment property purchase).
• If the property is turned over to the lender using a deed-in-lieu of foreclosure your credit report will be affected for four years after completion
• If the homeowner/lender sells the property by short sale the homeowner's credit report will be affected for two years after completion.

These are the rules in effect right now as I understand them. But they could be modified as we work our way through the current housing market cycle.

Consult an accountant and/or attorney before you make the final decision.