Foreclosure can be a devastating experience, but recovery is possible! Here are some ways to prepare for the aftermath.
It can take between three and seven years for your credit score to bounce back. And the lower your initial score, the less time will be needed for it to recover. For example, a consumer with a pre-foreclosure score of 680 will take three years, while a consumer with a score of 720 or above will take about seven years. In the meantime there are some habits you can learn to rebuild your credit: build an emergency fund of 6 months, pay your bills on time, and use credit cards wisely.
You Might Receive Higher Interest Rates
After going through foreclosure your interest rate can increase as much as 30 percent. If your credit record is good other than the foreclosure this rate can drop to a lower amount within two years.
You might have to disclose your foreclosure to potential employers because they often perform credit checks if they are hiring for a job that requires the person to be financially responsible – such as an accountant position or even cashier. It might be in your best interest to be completely up front about this, and maybe even helpful to explain how the foreclosure has helped you change your habits.
Watch for a Tax Bill
In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act, protecting foreclosed homeowners from being taxed in some instances. But that law expired this year, so your forgiven debt may be considered taxable income. But there are exceptions and if you can prove you’re insolvent, some or all of your forgiven debt might not be taxable.
For information and guidance on foreclosure, you need the experts at Resnik Hayes Moradi LLP.
Source: Two Cents, How to Dig Yourself Out After a Foreclosure, March 12, 2014