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Bankruptcy Law/Follow up to Bankruptcy question related to mortgage application

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Expert: - 3/25/2010


Question
The loan application question that I'm having a problem with is: "Have you ever filed for bankruptcy? If so, how long ago-1 year, 3 years, 7 years...?"

You said in a previous post that if you're asked a question to answer honestly. But, I don't want to answer in the affirmative because I feel like the lender is trying to get around the credit reporting laws. I feel like the lender should not be asking the question in this way and that they're trying to get info that they're not legally entitled to get from me.

As an example of what I feel is a legitimate way to ask the question, I provided the following question: "Have you been declared bankrupt within the past 7 years?" (This bankruptcy question comes from the Fannie Mae Uniform Residential Loan Application (https://www.efanniemae.com/sf/formsdocs/ forms/pdf/sellingtrans/1003irev.pdf -- Form 1003 -- rev.6/09).

I filed for bankruptcy more than 10 years ago. I've had spotless credit since then. I've worked so hard to get my credit back to the high 700s. And, now via this question they'll easily find out that I had a bankruptcy (when that info is no longer on my credit report). AND, the info could potentially be used against me. So, what else can I do? Try to find a lender that asks the question differently? But, this particular lender has very good rates and I want to have a chance at getting a loan from them. This is quite a pickle! Either I don't answer the question and risk the lender finding out about the bankruptcy through other sources OR I answer the question and risk the potential negative effect. What to do? What to do?

Thanks in advance for any thoughts you can provide!

Answer

Leon Bayer
I would check the 7 year box and right next to the box I would write a "+" sign to indicate 7+ years ago, and I would write in that "I filed ____ years ago," and supply the actual date and case number.

I find that loan officers are looking for ways to approve loans, not ways to turn them down. Hopefully they will be impressed with your basic honesty and the fact that you have a great credit record since then.

I certainly agree with you about what the question should say. Unfortunately they did not phrase it the way you and I think it should be.

There have been so many BK cases filed in the last few years that it has lost much of the former stigma that went with filing.

Anyway, I have explained how I would answer this. I wish you the best.
    Questioner's Rating
    Rating(1-10)Knowledgeability = 10Clarity of Response = 10Politeness = 10
    CommentThanks! Understood. BTW: I'm dealing with an online application, so there's no place to put an explanation where the bankruptcy question is being asked. Perhaps when I click through to some later page near the end of the application they'll have a spot for comments. Here's hoping! Anyway, I'll reluctantly do as you suggest. I suppose it's the right thing to do, but it really bothers me! Anyway, thanks again for your thoughts.


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Los Angeles Bankruptcy Lawyer Leon D. Bayer

Expertise

Leon Bayer has successfully represented clients in bankruptcy for over 30 years. He is frequently called upon by the media, the California Bar and other associations to provide insight and help educate attorneys on bankruptcy issues. If you or other readers want to keep up with my blog postings about life in and out of bankruptcy, you can follow my blog at http://www.bankruptcyblogger.org/ and my personal web site at http://www.debt-relief-bankruptcy.com and A Human Guide to Bankruptcy at http://www.thebankruptcyguide.net/ Leon also writes about bankruptcy law for Nolo, see http://www.nolo.com/law-authors/leon-bayer.html and his "Ask Leon" bankruptcy law blog column at http://blog.nolo.com/bankruptcy/

Experience

Leon is a Certified Specialist in Bankruptcy Law by the State Bar of California, and has been a practicing bankruptcy lawyer in Los Angeles, California for 33 years.

Organizations
National Association of Consumer Bankruptcy Lawyers, California Bar Association, Los Angeles County Bar Association.

Publications
Author, ?The Essentials Of Chapter 13,? Daily Journal Report, December 18, 1987.
Contributing Editor, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993.
CEB Consultant, CEB-Personal and Small Business Bankruptcy Practice in California, 2003.


Education/Credentials
B.A., J.D.

Awards and Honors
President, 1995-1996-Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988. Law Advisory
Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000

MR. BAYER SAYS: The big banks and credit card companys have been working overtime for many years to undermine the Consitutional right of the American people to be able to claim bankruptcy protection. In 2005 the banking lobby successfully convinced Congress and the President to make the laws and proceedures more complicated, hopeing that it will stymie legitimate people from filing bankruptcy. They succeeded in gaining these complex new legal proceedures by greasing the legislative system with hundreds of millions of dollars in "campaign contributions." The good news for the American people is that while the new laws have made the proceedures needlessly complex to the point where inexperienced people can't help but trip over the maze of new rules and regulations, the process is still doable, especially with a lawyer who is well trained and experienced in this specialty.

Past/Present Clients
I have probably handled something on the order of about 15,000 bankruptcy cases thropughout my career.

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