Chapter 7 Process

• Chapter 7 is considered a "straight bankruptcy" for the purpose of quickly eliminating debt. The process lasts about three or four months as the bankruptcy trustee makes determinations about liquidating nonexempt assets to pay creditors. Nonexempt means the assets are not protected during the bankruptcy. Exempt or protected assets include cars below a certain value and primary residences in most cases. Other items, such as rental properties or expensive jewelry collections, are nonexempt and subject to liquidation.
  
  

Waiting Period

• People filing for Chapter 7 can begin applying for credit immediately after bankruptcy, but usually must wait a while to purchase a home on credit at a reasonable interest rate. Chapter 7 bankruptcy is part of your credit report for 10 years, and you will need at least two or three years to rebuild credit before any lender will approve you for a mortgage. Some mortgage loans may be available sooner at high interest rates. Use secured credit cards and make on-time monthly payments while keeping balances low to rebuild your credit and eventually qualify for a mortgage with a favorable interest rate.
  
  

Cash Sales

• Purchasing a house with cash during Chapter 7 is also impossible. Debtors filing for Chapter 7 bankruptcy protection must list all assets and debts in the bankruptcy agreement. The bankruptcy courts take the process very seriously and using cash assets to secretly purchase a home could lead to fraud charges or a dismissal of the bankruptcy application. An extensive amount of cash is a nonexempt asset in Chapter 7. The bankruptcy trustee will order the cash spent on paying creditors.
  
  

Legal Advice

• People contemplating filing for bankruptcy and buying a house at the same time should seek advice from a reputable bankruptcy attorney. The attorney can offer legal advice on purchasing a house and possibly delaying a bankruptcy until later. This may be an option for people who can somehow qualify for a mortgage despite poor credit caused by excessive debt. Alternatives to Chapter 7 bankruptcy include debt management plans guided by credit counselors and debt settlement. Debt settlement allows payment of unsecured debt for less than the full balance.