The Denver Post published an article on August 17, 2014 noting that large student loan debt is preventing many prospective first time homebuyers from buying a house. When the bank reviews an application with high student loans, they reject it because the debt to income ratio is too high. If a person has a car payment of say $350, student loan payments of $300, and credit card payments of $500, they simply can’t afford a house payment.

Filing Chapter 7 bankruptcy will not cancel student loans, but eliminating OTHER debt can lower the debt to income ratio and thus allow a person to qualify when they couldn’t before filing.

Of course, you must wait a period of time after filing to apply for a house, and otherwise meet the lender’s requirements when you do, but you are closer to approval after the bankruptcy because your debt level is so much lower after discharging debt you cannot afford.  If you have questions regarding bankruptcy please contact me for a free consultation.

Peter's Blog