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Debt Settlement
My mortgage lender said I did not qualify for a mortgage because I had a debt settlement. The loan officer told me that mortgage lenders consider debt settlement the same as bankruptcy. Some mortgage lender consider debt settlement worse than bankruptcy because with bankruptcy, you cannot file another bankruptcy after seven to ten years after a discharge. However, with debt settlement, the consumer is a walking time bomb and can file bankruptcy anytime after the debt settlement. Is this true? I should have never done a debt settlement if I am treated like a dead beat. I tried to be a responsible person and pay my debts with debt settlement. How long does a debt settlement on your credit report.
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1 Reply
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The Repercussions of Debt Settlement When Applying for a Mortgage
It cannot be denied that many mortgage lenders are generally wary of debt settlement. This is even more so than bankruptcy in certain instances. Here’s why:
Debt Settlement vs. Bankruptcy:
- Debt settlement and bankruptcy are undesirable situations for the borrower.
- However, the two are treated very differently by lenders.
- In a debt settlement, you agree with creditors to reduce the cumulative figure owed.
- This can also be perceived as a case of falling short of your obligations.
- They would be concerned that even though you cannot file for bankruptcy for a certain period after the filing of payment, realizing debts is not applicable is not applicable in the case of debt settlement.
- Debtors can smother their finances and file for bankruptcy anytime after the settlement.
Lender Perspective:
- From the lender’s point of view, the situation’s enormity would have prompted a court-supervised process.
- This is where the debtor was made to undertake a series of steps to resolve their debts.
- This includes filing a request to the court on the minimum waiting period before they can file again.
- Bankruptcy is where a reversal of assets would be substituted for a positive garnishment.
- The courts supervise the process.
- Debt settlement is a reversal of financial obligation entered into by the parties.
- Debt settlement is not through formal legal channels.
- This is what most lenders would be apprehensive of due to possible losses.
How Long Debt Settlement Stays on Your Credit Report
Duration on Credit Report:
- A debt settlement will be reflected on your credit report for seven years.
- Considering the states where the exercise was due and the delinquency that occurred.
- This period can greatly reduce your credit score and chances of getting more credit facilities like mortgages.
Strategies to Rebuild Your Credit After Debt Settlement
Monitor Your Credit Report:
Most of the time, ensure that you review the credit reports of the three bureaus and report any inconsistencies regarding debt settlement reporting.
Rebuild Your Credit Score:
Timely Payment: Be punctual in all of your present payments. Payment history is the most important area affecting the credit score.
Reducing Debt: Effect proper management of outstanding debts and avoid high credit utilization.
Secured Credit Cards: Use a secured credit card to rebuild your credit history. These cards require a deposit and can allow you to develop a positive payment history.
Consult with a Mortgage Broker:
Keep working on equity participation loans. Trying a mortgage broker to help you track down lenient lenders who will allow loans with past debt settlements makes sense.
Consider Waiting and Reapplying:
- Better still, much as the above explanations are compelling.
- The experience of waiting a little longer before going back to the mortgage application process would help you make further inroads to ensure that the damage caused to your credit score by the debt settlement has been minimized.
Moving Forward
Understandably, such hurdles can be annoying, especially after having put effort into attempting to handle one’s debts responsibly. This does not have to be the case since there are things you can do to better your current situation and be able to apply for a mortgage in the near future. Waiting could help improve your credit status, so your chances of getting approved for loans in the future will be very high.