A bankruptcy filing delivers a devastating blow to your credit and FICO score, but it doesn’t mean you have to wait 10 years before you can qualify for a mortgage. Many consumers who have filed for bankruptcy have been able to obtain a mortgage, although it is often at a higher rate than someone qualifying for a prime or "A-paper" loan.

While credit card companies may care about what happened before you filed for bankruptcy, many mortgage lenders are more interested in your recovery — what you’ve done since your filing. It won’t happen over night, but here are some tips and things to keep in mind when you inquire about a mortgage with a tarnished credit past:

Give explanations. No mortgage lender is going to ignore the fact that you’ve filed bankruptcy and he or she will likely want to know the cause of the filing. Your lender will be particularly interested in whether the same situation could happen again. Your chances of being qualified are much better if your bankruptcy was caused by a single event such as a loss of employment or a death in the family, than if it was the result of “just spending too much.”

If the bankruptcy resulted from a single event, it is important to show your lender paperwork describing the incident, such as the layoff notice or death certificate. You may be rquired also to bring in discharge documents to indicate when the bankruptcy was filed.

Demonstrate good money habits now. Many people who file bankruptcy swear off credit altogether, however, it is important to re-establish your credit rating. Get a secured credit card or take on some sort of loan — furniture, a car or a major appliance — to demonstrate that you are able to make timely payments. Make sure you are making other payments (utility bills, cell phone, etc.) on time as well. You won't turn things around in a year but your credit score will improve over time.

Dispute any credit report errors. There’s no need to add to your troubled credit history with errors on your credit report. Get a copy of your credit report from each of the three major credit reporting agencies: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com. If you encounter any errors, inform the CRA in writing what information you believe to be inaccurate and request deletion or correction.

Save your money. Lenders may be more willing to loan you money if you’ve saved up a considerable amount of money for a down payment.

Live within your means. Even subprime lenders won’t risk loaning you money for an opulent oceanfront mansion. Think small when the time comes to look for a home. Smaller homes often mean smaller mortgages.

After bankruptcy...Never be late on  any mortgage payment, and really not on any type of payment, either. There are some lenders that will not proceed with a mortgage loan, if your credit report shows a mortgage late after a bankruptcy was settled.

HOW LIKELY ARE YOU TO BREAK THE BANK ???

The new federal bankruptcy law that took effect on October 2005 requires individuals who file to attend a personal-finance class before their debts are discharged. There's no mandatory exam to "graduate" from bankruptcy, but some teachers plan to give a test to measure their program's effectiveness. Take the quiz below and see if you're already smart enough about your finances to stay clear of bankruptcy court.

compiled by Eileen Ambrose - The Baltimore Sun.

1. Which type of investments has the highest level of risk?

A. Mutual Funds.  B. Individual Stock.  C. US saving bonds.  D. Money-market account.

2. The best way to determine a mortgage's cost is to look at the :

A. number of monthly payments.  B. monthly payment amounts.  C. interest rate.  D. the APR.

3. A Fico score is :

A. the spread between assets and liabilities.  B. a number representing your creditworthiness.        C. an interest rate determination set by the bank.  D. percentage of bill payments made on time.

4. Your credit score is based on :

A. payment history & outstanding debts.  B. employment and outstanding debts.                          C. income and payment history.  D. income and outstandings debts.

5. On a credit report, most negative information can remain for a maximum of 7 years from time it was reported.

A. True.   B. False.

6. The best way to improve a damaged credit history would be to :

A.file for bankruptcy.  B. establish a record of timely payments.  C. contact a credit repair company.  D. dispute inaccurate information.

7. Credit card, student loan and recent tax debts are among the debts that can be discharged in a chapter 7 bankruptcy.

A. true.   B. false.

8. Chapter 7 bankruptcies stay on your credit report after discharge for :

A. 5 years.  B. 7 years.  C. 10 years.  D. indefinitely.

9. After chapter 7 discharged, you must wait at least this long before filing another chapter 7 bankruptcy.

A. 4 years.  B. 6 years.  C. 8 years.  D. you can never file again.

10. You risk losing all of the money in your bank account if you don't report the loss of your debit card within :

A. 2 days.  B. 30 business days.  C. 60 business days.  D. 1 year.

11. Which of the following offers a line of credit you can use anytime you wish?

A. auto-loan.  B. home-equity loan.  C. college loan.  D. home-equity line of credit.

12. A good way to cut insurance costs is to :

A. ask for a multiple-policy discount.  B. ask for discounts for safety features.             C. increase your deductibles.  D. all of the above.

13. Which type of life insurance has an investment component that goes beyond straight insurance coverage ?

A. term life.  B. whole life.  C. health insurance.  D. roth IRA.

14. Higher deductibles on insurance will lower your monthly payment, but increase your risk of out-of-pocket expences.

A. True.   B. False.

15. The math question: get out the calculator !

Beginning at age 18, if you saved $3,000 a year for five years and earned an annual return of 10% over 47 years, at age 65 how much money would you have ?

A. $55,000   B. $165,000   C. $460,000   D. more than $1 million.

SCORING :

15 correct: who needs anyone else for Fed chairman when you are available ?

10-14 correct : not quite banker material, but your checks don't bounce.

5-9 correct : congratulations, you're average.

Below 5 : slowly back away from the plastic.

ANSWERS :

1-B,  2-D,  3-B,  4-A,  5-A,  6-B,  7-B, 

8-C,  9-C,  10-C,  11-D,  12-D,  13-B,  14-A,  15-D.