Q: I filed for bankruptcy (Chapter 7) in early 2001 and it was discharged on 5 July 2001. I currently own a townhouse. I wanted to sell it and buy a single family house. My questions are: 1) Do you think I can find a lender willing to give me a loan? I don't have much cash at this time. 2) Should I wait about 1 more year to sell and buy? I've been told that I should wait at least 2 years.

A: Bankruptcies hit an all time high in 2002 and with homeowners still struggling to recover from this most recent recession, they may continue to climb in the next 12 months. Regardless if a recession is mild or severe, it’s always severe for the people who lose jobs and find it hard to recover before filing for bankruptcy.

People who have filed bankruptcy can get a mortgage to buy a home in about 18 to 24 months. There’s no standardized waiting period, each mortgage company may have different programs to allow borrowers the ability to buy a home regardless of their credit rating and bankruptcy history – but be forewarned, you’ll most likely pay dearly for it through high fees and higher than normal interest rates.

Don’t be discouraged about this scenario, however. Keep in mind with 30-year fixed rate mortgages going for under 6 percent right now, high interest rates in today’s market, means 8 – 10 percent. My first mortgage was a 2-1 buy down with perfect credit and my interest rate started at 10 percent and went up a percentage point per year for the next two years – interest rates are really all a matter of perspective.

Should you wait to sell/buy property? I get this question a lot. Real estate is a great investment no matter when you buy – if you’re willing to let time work in your favor.

Obviously, there are peaks and valleys in the real estate market just like any other investment. As an investor, if it’s a seller’s market – sell. But don’t buy unless you’re able to pick up a house for a fraction of the market value. If you’re talking about whether you should sell and buy a house for your personal residence, then that’s easy. Sell when your current house peaks and dive into your move-up property. Obviously, the house you’re going to buy is also peaking, but you now have more cash to work with than you ever will possess at that point in time from the equity of the house you’re selling.

Your house is one of those investments that you get into for just 1 to 10 percent of the value of the asset. If you put $10,000 into the stock market, your value is $10,000. If you put $10,000 into real estate, your value can be into the hundreds of thousands of dollars, depending on what kind of financing you were able to acquire.

If you’re looking for more information about how you can borrow money after filing bankruptcy, I found a really good web site with plenty of answers at www.Bankruptcy-Expert.com. The site, maintained by the Moran Law Group, a bankruptcy legal firm in Mt. View, Calif., has a very useful FAQs section, including bankruptcy and homeownership. Go to the Table of Contents as a starting point.

Finally, before buying another property following your bankruptcy, seriously consider how you arrived in this situation to begin with.

I knew a couple who filed bankruptcy and eventually lost their house to foreclosure. For several years they ended up living in a small apartment with a dog and two kids. Once their waiting period was over, however, they dove right back into debt as quickly as the creditors would let them. Their desire to get back on their financial feet was not as great as their appetite for “things” bought on credit. Within a few months, they were back into the financial pressures that started them down the road to bankruptcy.

If you’ve filed for bankruptcy in the past, be sure to change your habits before diving into the credit game again. Understand the dangers of debt and avoid them at all cost.

Published: January 31, 2003

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Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple. Got a personal real estate issue? Post your questions and comments at Anthony’s blog: commonsenserealestate.blogspot.com.