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Bankruptcy Dismissal
What happens if someone is advised to do a voluntary chapter 13 dismissal instead of obtaining courts approval for mortgage while in the underwriting process? Will that automatically disqualify them from getting the loan?
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1 Reply
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If a person chooses to dismiss their Chapter 13 bankruptcy voluntarily during mortgage underwriting instead of seeking approval from the court, they will be unable to apply for the loan. The reason is that lenders require court approval to know whether or not a borrower can take on additional debt while protected by bankruptcy. Suppose such verification is not done because bankruptcy was dismissed without court permission. In that case, that seems like an attempt at avoiding it, which raises suspicions among lenders and leads them to deny loan applications. Yes, this does touch on the subject of bankruptcies and mortgage approvals. Allow me to elaborate:
Chapter 13 Bankruptcy:
This type is intended for individuals who wish to reorganize their debts and pay them off within three to five years.
During this time, the debtor is supervised by the courts.
Incurring New Debt During Bankruptcy:
Normally, people under Chapter 13 must seek permission from the court before incurring more debt, such as getting another mortgage.
This ensures no other financial obligations interfere with already agreed repayment plans between creditors and debtors.
Court Approval Process:
An applicant (debtor or attorney) files a motion seeking authorization with the bankruptcy court.
A judge evaluates whether granting such a request would be viable based on present income levels versus suggested monthly payments to settle outstanding balances owed to different creditors over the period specified under a plan adopted under it.
Voluntary Dismissal Without Approval
Should a debtor dismiss his/her case without following proper procedures, including obtaining necessary consents from relevant authorities like judges presiding over matters related thereto, rather than moving straight away without involving these persons, then there may be problems, especially when dealing with insolvency laws issues.
From Lender Perspective:
Loans given out during bankruptcies are seen as risky undertakings by lenders.
They require evidence that courts have authorized them before proceeding with lending decision-making processes.
Without voluntary dismissal having necessary endorsement(s), it indicates something may be amiss with the applicant or their financial situation, thus prompting further inquiry by lenders.
Possible Outcomes:
Loans will be automatically denied, as earlier indicated.
This action could also be interpreted as a lack of transparency on the part of the borrower, which affects his/her future ability to get credit facilities because it will leave negative marks on credit reports held at different rating agencies globally.
Right Approach:
If an individual wants to get out of bankruptcy through dismissal, he/she should follow the correct channels, which entailed informing concerned parties such as mortgage lenders or servicers and getting consent from the court before implementing such moves.
Transparency Matters:
Honesty is always key in lending transactions since being truthful helps build confidence between borrowers and lenders.
Those who attempt to circumvent formalities risk ruining the trustworthiness required when bargaining for terms over borrowed funds from financial organizations. This, in turn, spoils one’s integrity vis-à-vis money matters within the community, reducing one’s chances of accessing cheap finance alternatives later in one’s lifetime.
Long-Term Ramifications:
Suppose one were to secure financing after discharging bankruptcy without following the proper steps, there may still be legal consequences of this action, particularly where deliberate violation of applicable laws can give rise to accusations such as fraud against creditors who might choose to pursue civil remedies in terms of relevant insolvency provisions.
Advice for Borrowers:
When discussing potential borrowing opportunities with various lenders, always be open about your bankruptcy status.
Getting new credits while still under a Chapter 13 debt relief plan can be challenging; however, engaging the services provided by bankruptcy attorneys can help overcome these challenges.
Complying with all court procedures and obtaining necessary consent before entering into any significant financial agreement is important to satisfy statutory requirements.
Therefore, if you want to wave goodbye to your bankruptcy just to get approved for a mortgage loan, think again! It’s better to follow the right legal and financial processes even when they seem longer because this will ensure that you conform to bankruptcy laws while maintaining good faith among prospective lenders.