Bankruptcy Letter Of Explanation For Mortgage
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How to Write a Letter Explaining Your Bankruptcy. City-Data How to Write a Letter Explaining Your Bankruptcy, Foreclosure or Credit Snafu. But at the same time, understand humans are reading these letters. Once you have laid out the problem, explain the steps you took to correct the situation.. And if you arent serious about the mortgage, you.
Applying for a mortgage. help your explanation. For example, if your foreclosure was due to a divorce, include your divorce action. If it was because of an illness, attach copies of your medical.
How To Fill Out Oregon Sample Letter For Explanation Of Bankruptcy
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Tips For A Good Letter Of Explanation
There are a few guidelines that apply to writing a consumer explanation letter, regardless of the situation.
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Is Buying A House After Bankruptcy Possible
Yes, you can buy a house after bankruptcy. If youre not paying cash upfront for a new home, borrowing from a mortgage lender can be challenging. But its not impossible.
Conventional loan programs and government-backed mortgages have processes in place to help bankruptcy filers recover from their financial missteps and become homeowners again.
How Can The Debtor Obtain Another Copy Of The Discharge Order
If the debtor loses or misplaces the discharge order, another copy can be obtained by contacting the clerk of the bankruptcy court that entered the order. The clerk will charge a fee for searching the court records and there will be additional fees for making and certifying copies. If the case has been closed and archived there will also be a retrieval fee, and obtaining the copy will take longer.
The discharge order may be available electronically. The PACER system provides the public with electronic access to selected case information through a personal computer located in many clerk’s offices. The debtor can also access PACER. Users must set up an account to acquire access to PACER, and must pay a per-page fee to download and copy documents filed electronically.
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Does The Debtor Have The Right To A Discharge Or Can Creditors Object To The Discharge
In chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to the debtor’s discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge. To object to the debtor’s discharge, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts a lawsuit referred to in bankruptcy as an “adversary proceeding.”
The court may deny a chapter 7 discharge for any of the reasons described in section 727 of the Bankruptcy Code, including failure to provide requested tax documents failure to complete a course on personal financial management transfer or concealment of property with intent to hinder, delay, or defraud creditors destruction or concealment of books or records perjury and other fraudulent acts failure to account for the loss of assets violation of a court order or an earlier discharge in an earlier case commenced within certain time frames before the date the petition was filed. If the issue of the debtor’s right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.
When To Include A Letter Of Explanation For Bankruptcy
Include a letter of explanation every time youre putting together a loan application, even if it is not required or mentioned by the lending institution . As long as your letter of explanation is written in plain English and your points are made clearly and succinctly, it can only help your case as to why you deserve to be a trusted borrower.
Again, honesty is key here because if the bank comes to find out you withheld information that would have changed their decision even if you did nothing illegal per se the chances that they will want to do business with you again are extremely low. By being anything but transparent in your letter of explanation, youre effectively burning a bridge. And thats the last thing you want to do when youre rebuilding after bankruptcy.
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There Are Long Gaps In Your Employment History
You need a steady and reliable income to keep up with a home loan, so long gaps in unemployment may make you seem like a riskier client. For VA and jumbo loans, your lender may require a letter of explanation for gaps in unemployment within the last 2 years. A letter is only required when said gaps are greater than 30 or 60 days, depending on the type of loan.
Youll need to explain what occurred as there are many reasons for such gaps, including having a child, a return to education, caring for a family member, a business failure, downsizing, mass layoffs due to the COVID-19 pandemic, seasonal work and more. If you were able to continue meeting your financial obligations during this time, include that information, too.
Adding Supporting Documentation Will Strengthen Your Case
Notice in the letter above weve referenced two pieces of supporting documentation, pay stubs, and medical records. You can make your bankruptcy explanation letter even more credible by including supporting documentation.
For example, if the reason for your bankruptcy was medical, include copies of any records that will substantiate the episode. If it was due to divorce, supply a copy of the divorce decree.
Always realize that the lender isnt looking for ways to decline your loan application. Instead, he or she is looking for you to supply proof that will justify approving your loan.
Writing a good bankruptcy explanation letter, and providing supporting documentation, will make it easier for the lender to approve your application. Approach it like your approval depends on it because it just might.Get Help Repairing Your Credit
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How A Letter Of Explanation Can Improve Your Mortgage Approval Chances
Federal regulations require that lenders prove they have verified your ability to repay the loans they make. A letter of explanation may provide the extra documentation needed to:
- Clear up any discrepancies on your credit report, like late payments or cosigned loans
- Verify the dates of major credit issues like bankruptcies or foreclosures
- Help an underwriter understand how you earn money or why your income changed
- Show where your down payment or closing cost money is coming from
- Confirm whether you recently opened any new credit accounts
Mortgages And Debts Secured On Your Home
Youll need to keep paying your mortgage and any other debts secured on your home for example, debts secured with a charging order. If you fall behind with the payments, bankruptcy wont stop your mortgage lender from taking steps to repossess your home.
If you have an income payment agreement or income payment order , tell the official receiver you need to keep paying a secured debt. Ask them if you can pay less under the IPA or IPO so you can keep paying the secured debt as well.
If your home is repossessed and sold, but doesnt raise enough money to pay off your outstanding mortgage or any other debt secured on it, the remaining debt known as mortgage shortfall will no longer be secured. This means youll be released from it at the end of your bankruptcy. Youll also be released from a mortgage shortfall if your home is sold at any time, even after your bankruptcy has ended.
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Chapter 7 Waiting Periods
After a bankruptcy is discharged, it will take time to build your credit and savings back up to home-buying level. And lenders want to know your financial situation has fully recovered and that youll be able to manage on-time payments with a new mortgage.
As such, mortgage lenders enforce a minimum waiting period or seasoning period before borrowers can apply for a mortgage after bankruptcy.
The minimum waiting periods to get a mortgage after Chapter 7 are as follows:
- FHA loans: two years
- USDA loans: three years
- Conventional loans : four years
Understand that these waiting periods are the minimums required by each loan program. Some lenders will require you to wait longer.
For example, some lenders will ask you to wait three years before applying for an FHA loan rather than the two-year minimum required by the Federal Housing Administration.
There are some rare situations where borrowers can get approved before the two-year waiting period, which we describe below. But for most prospective home buyers, these minimums will be strictly enforced.
Take the time to get your credit score as high as possible and save for a bigger down payment. Both strategies will help you get a lower mortgage rate and a more affordable home loan when you do buy.
How To Write A Bankruptcy Explanation Letter
One of the first things youll discover when you have a bankruptcy on your credit report is lenders get wary. Make no mistake, they see that entry that reads Chapter 7 or Chapter 13 bankruptcy, and the red flags go up.
From their perspective, this is completely reasonable. After all, they dont know why you declared bankruptcy, they just know that you did. Human nature being what it is, some of us tend to assume the worse. And one of the most important aspects of being a loan officer the person who decides whether to extend credit to or not is the ability to identify smart risk as opposed to bad risk.
With a bankruptcy entry sticking out of your loan application like a sore thumb, its no wonder loan officers many times turn down people with a bankruptcy.
Thats where a bankruptcy letter of explanation comes in: it explains in short, simple language the events that led to your current financial situation, how youve already started repairing your credit, and how youll pay back the loan youre applying for. It can be useful not just in appealing to the good nature of whoever is looking over your application, it can have a very concrete, numbers-based impact on whether your application is approved or declined.
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People tend to associate legal paperwork with something complicated that only a professional can deal with. In some way, it’s true, as drafting Sample Letter Of Explanation For Bankruptcy requires substantial expertise in subject criteria, including state and county regulations. But with the US Legal Forms, things have become more accessible: ready-to-use legal forms for any life and business occasion specific to state laws are accumulated in a single online library and are now available for everyone.
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May The Debtor Pay A Discharged Debt After The Bankruptcy Case Has Been Concluded
A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family member or because it represents an obligation to an individual for whom the debtor’s reputation is important, such as a family doctor.
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Is A Letter Of Explanation A Bad Thing
A letter of explanation is not necessarily a bad thing. Although it likely means that your home loan application didnt fly through the approval process, it does mean that the underwriter wants to learn more.
For example, in the course of the application process, a lender might ask for more information if you are self-employed. Self-employment isnt a bad thing. It just means that the lender wants to know more about your finances.
Additional information provided in a letter of explanation, such as bank statements or the reasons behind your bad credit, could lead to the mortgage approval youve been looking for.
What Is A Discharge In Bankruptcy
A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.
Although a debtor is not personally liable for discharged debts, a valid lien that has not been avoided in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.
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Can Official Receiver Take Money After Discharge
While any assets you obtain after you’ve been discharged are safe, any that were seized under the bankruptcy that have not yet been dealt with remain under the control of the trustee or official receiver. They can still be used to pay off your debts even after discharge and you will not be able to take them back.