After You’ve Filed For Chapter 13 Bankruptcy
Filing for Chapter 13 bankruptcy is a three- to five-year processbut that doesn’t mean that you can’t buy a house during that time. You can obtain an FHA loan before you complete your plan if you meet the following conditions:
- You’ve paid 12 months of plan payments.
- The court approves your request to purchase a house with an FHA loan.
- You can demonstrate that the reason you filed for bankruptcy is unlikely to occur again.
Keep in mind that the court might not be on board if you’d have to reduce the amount paid to your creditors in your plan to qualify for a home loan. And if you have to present the terms of the house purchase in your motion , you might have a hard time closing the deal. Many sellers would be unwilling to take their house on the market on the chance that you’ll obtain the necessary court approval.
If you’re considering this option, you should consult with a knowledgeable bankruptcy attorney before filing. A lawyer can advise you about the feasibility of a future loan qualification and, if possible, assist you by putting together a repayment plan that will help you reach your goal.
Focus On Rebuilding Your Credit
Its harder to qualify for refinancing with a bankruptcy on your credit report. In addition, the filing will continue to negatively impact your credit score until the item is deleted from your report.
However, there are several ways you can improve your credit score:
- Make on-time payments for loans and credit cards
- Dont apply for new credit accounts
- Maintain a credit utilization ratio below 30% on revolving accounts
- Dispute credit report errors
Rebuilding your credit also shows mortgage lenders that you can responsibly manage credit and make payments on-time for your current home loan and any other debts. Itll also help you qualify for better rates and terms.
What Are My Chances Of Getting A Mortgage After Bankruptcy
Many people are able to keep their homes when they file an Assignment in bankruptcy. When you file an Assignment in bankruptcy it is the job of the trustee to maximize the realization for your unsecured creditors. This includes your home, if there is any equity in the property. Equity is the difference between what the house is worth and what is owing on the house, such as a mortgage, property tax etc. If the value of the house is approximately equal to what is owing on the house, the trustee may allow you to keep the house and continue making the payments. Therefore allowing you to keep your mortgage after bankruptcy.
If there is some equity in your property, the trustee still may allow you to keep your home on the condition that you contribute the amount equal to what the equity is worth into your bankruptcy estate .
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Why Is There A Waiting Period For Mortgages After Bankruptcy
A bankruptcy, whatever the reason, tells a lender the person filing had trouble paying bills. Lenders want to make sure that someone who had to take that drastic financial step is now a good risk. A mortgage is a lot of money that takes a long time to pay back. Lenders arent punishing mortgage applicants for filing bankruptcy, they just want to make sure theyre a good financial bet.
The first obstacle to owning a home after bankruptcy is dealing with the waiting period . Use that time well restructuring your finances and rebuilding your credit. It shows lenders you can make payments on time and live up to your end of the deal.
The waiting period as a chance to prove that bankruptcy doesnt define you, but that youre someone whos taken a bad financial situation and turned it around. Youre committed to managing a budget and making payments.
There are three kinds of personal bankruptcy, Chapter 7 and Chapter 13 make up 99.9% of bankruptcies. Chapter 11 is sometimes, though rarely, used by individuals. Waiting periods differ for each one.
Write A Letter Of Explanation
Your lender takes a careful look at your finances when you apply for a mortgage. Every time a lender issues a mortgage, they take a risk. Lenders need to know that youll make your payments on time every month. Of course, a bankruptcy on your record is a major red flag.
You can increase your chances of getting a mortgage after bankruptcy by writing a letter of explanation. A letter of explanation tells your lender more details about your bankruptcy and why you needed to declare bankruptcy.
You might want to include details on the circumstances that led to your filing and how your financial life has changed since then. Also, explain the steps youve taken to prevent a future bankruptcy as well like paying off debt and building an emergency fund.
A letter of explanation isnt a requirement to get a mortgage after bankruptcy, but it can help your lender see the bigger picture instead of just a set of numbers. Include your letter of explanation with your mortgage application when you request a preapproval.
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Securing A Mortgage After Foreclosure
Often times, a foreclosure leads to bankruptcy. If you cannot keep up with your mortgage payments, the bank will eventually foreclose your property. Your home may be sold at a sheriffs sale for less than you owe and youll be responsible for paying for the remaining loan amount. If you cannot pay the remaining loan amount, you may need to file for bankruptcy to discharge the money you owe.
If you are forced to file for bankruptcy following a foreclosure, know that you may still qualify for another mortgage in the future. In most cases recovering from foreclosure and getting approved for another mortgage can take seven years. However, each lender has different time frames in which it will reconsider someone who has filed for bankruptcy.
If your foreclosure occurred prior to your bankruptcy, your waiting period will start the day of your discharge. In the event that your foreclosure took place following your bankruptcy, your bankruptcy discharge date rather than your foreclosure date will be used.
Learn How Long It Takes To Get An Fha Va Usda Or Conventional Mortgage Loan After Chapter 7 Or Chapter 13 Bankruptcy
Updated By Cara O’Neill, Attorney
Filing for bankruptcy doesn’t have to put a damper on your home buying dreamat least not for long. Lenders have eased requirements, opening the door for bankruptcy filers to get back into a home sooner than in the past.
Currently, the average waiting period is two years. In this article, you’ll learn about common mortgage loans and the respective eligibility requirements for bankruptcy filers.
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Fannie Freddie And Ginnie
Most conventional loans in the United States are owned by or insured by the government-sponsored enterprises Fannie Mae, Freddie Mac, or Ginnie Mae. These backers have similar loan eligibility requirements for borrowers who have filed bankruptcy cases. These are guidelines. Your mortgage lender or mortgage broker can help you with the specifics.
In addition to a waiting period, these organizations require that borrowers demonstrate they have re-established credit after the bankruptcy.
Chapter 7: The waiting period is 4 years, or 2 years with extenuating circumstances . An example of extenuating circumstances would be a layoff and extended unemployment, or medical issues.
Chapter 13: The waiting period is 2 years from discharge and 4 years from dismissal, or 2 years from dismissal with extenuating circumstances.
If you have more than one filing within the past 7 years, the waiting period is 5 years from the most recent discharge or 3 years with extenuating circumstances.
What Is Discharged Bankruptcy
When you are discharged from bankruptcy, it means that youre no longer bankrupt. Any restrictions that were in place during the bankruptcy term, such as not being able to travel overseas or limits on the amount of assets you can own, no longer apply.
Despite being discharged, you are still obligated to cooperate with the trustee, who will continue to manage your bankruptcy for a set period of time.
From a finance point of view, it means that you are now able to apply for credit again. However, your and the bankruptcy register will continue to show that you were bankrupt in the past.
Seek Help From A Financial Professional
Sound advice can help you weave your way through the obstacle course. A nonprofit credit counselor can sit down with you and go over budgets and ways to approach buying a home after bankruptcy. A financial professional can offer or help in improving your credit score.
Professionals are called that for a reason. They can help. Do not be afraid to seek it.
6 Minute Read
Understanding Bankruptcy And Home Equity Loans
Bankruptcy, a legal procedure for people who cannot pay their debts, allows consumers to eliminate their debt or restructure it to make repayment possible. Filing for bankruptcy offers an opportunity to regroup and get a fresh start on your finances.
Bankruptcy will impact your credit history and your credit score, which in turn impacts how soon you can get a line of credit after bankruptcy. A Chapter 7 bankruptcy will stay on your credit report for up to 10 years, while a Chapter 13 bankruptcy will stay on your credit report for up to seven years. The impact on your credit score depends on several factors, including your score before bankruptcy. For example, if you had a high credit score, you should expect to see a bigger drop than someone with a lower score who had existing negative marks on their credit report.
If you were able to keep your home after bankruptcy and have equity in the property, you may be able to access that equity to improve your finances. You typically have three options to tap into your home equity after bankruptcy: cash-out refinance, home equity loan and home equity line of credit.
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Waiting Period For Chapter 13 Bankruptcy
Chapter 13 bankruptcy waiting periods are generally shorter. For instance, after a Chapter 13 discharge, as long as youve made 12 qualifying on-time payments, youll only need to wait a day to refinance a government-backed loan.
The waiting periods to refinance after a Chapter 13 discharge are:
- FHA, VA, and USDA loans: 1 day with 12 qualifying on-time payments
- Conventional loans: 2 years
- Jumbo loans: 7 years
With conventional loans, if you dont complete the terms of your repayment plan, the court can dismiss your bankruptcy, and youll have to wait four years after that date to refinance your mortgage.
We Make Mortgages Possible
Over 50% of mortgages for people who are self-employed or have bad credit arent available directly to you. Theyre only available through specialist brokers. Using our platform guarantees youll be matched with a broker who has a proven track record of making mortgages possible for people like you. Less processing, more understanding.
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Can I Refinance My Current Home Loan
Most people lose their properties when they declare themselves bankrupt.
A few people manage to keep their homes or have purchased a home since being discharged.
You can refinance to a new lender if you have an excellent repayment history on your current home loan.
Lenders ask for statements to prove that your last six months repayments have been on time.
In many cases, your first mortgage is at a higher rate with a specialist lender and then later, we refinance your loan to a low rate with a major lender once you have a proven repayment history.
Speak with one of our specialist mortgage brokers to go over your refinancing options. Call us on 1300 889 743 or fill in our .
Can I Get A Mortgage After Declaring Bankruptcy And Being Discharged
Buying a house after bankruptcy can be challenging, but bankruptcy mortgages are not impossible. What is more, you can normally still access a range of lenders and types of mortgages.
So, even if you want help to buy mortgages, buy to let mortgages, or a bad credit mortgage, there are standard lenders and specialists out there that can help.
Having bankruptcy on your your ability to access equity release. The good thing is that with the right help and advice you can get a mortgage with a similar LTV and interest rates to what other borrowers get.
Here is a useful video that explains the impact of mortgage and bankruptcy.
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Impact Of Foreclosure On Waiting Periods
All of the above waiting periods can be impacted, and potentially increased, if your bankruptcy included a foreclosure. In that case, the FHA loansâ waiting period increases to 3 years and conventional loans increases to 7 years. Both VA and USDA loans remain the same, at 2 and 3 years, respectively. Proving extenuating circumstances can reduce the waiting period.
Do I Still Need To Tell Lenders Ive Been Bankrupt After Six Years
It’s best to be honest about previous bankruptcies, even if it’s gone from your credit file. It will save you time, effort and money during your application.
Bankruptcies disappear from your after six years, but most lenders will ask whether you’ve ever been bankrupt. It’s always best to be honest and upfront.
If you’ve been bankrupt previously, your name is placed on the National Hunter database. This is a database containing everyone who’s been bankrupt – even after theyve been discharged. Regardless of whether you own up to it, a lender will be able to find you on this database. Make sure your broker and lender knows about the bankruptcy early. You don’t want to risk being rejected later on.
When looking for a mortgage after bankruptcy, it’s a good idea to work with a specialist mortgage broker. Someone who knows the market, has good relationships with the lenders who might accept you, and who knows how to make your application look good. Make an enquiry to get matched with the perfect broker for you.
How Do I Increase My Chances Of Being Approved For A Mortgage After Bankruptcy
Getting a mortgage after bankruptcy can be difficult but not impossible, with many highstreet lenders declining applications with previous bankruptcy. Our specialist brokers and the lenders they work with believe that everyone deserves consideration, and could help you find a mortgage even after bankruptcy.
Some lenders will consider your mortgage application immediately after youre discharged. Others might require you to have been discharged for at least 12 months, if not for several years. The main issue facing borrowers is their deposit amount. The longer since your discharge, the more likely a lender will be to accept you for a higher Loan to Value product.
Speak to us today about your situation and we can advise on the right path for you.
Chapter 13 Waiting Periods
For a Chapter 13 claim, you can apply for a new FHA loan 1 year after dismissal. Thats if you have made court ordered payments on time and have received written permission from the court overseeing your case.
Your application must go through manual underwriting and the lender must be satisfied with your explanation of what led to bankruptcy and why it wont happen again. Once 2 years have passed since discharge, you are able to apply for a mortgage without manual underwriting.
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Save For The Biggest Down Payment Possible
So youre in the process of re-establishing your credit and have put yourself in a better place to take on a mortgage, but dont run out to your bank or mortgage agent just yet! Michael and Bev explain that a mortgage is possible at a 5% down but you will pay a cost in terms of mortgage insurance. Any down payment below 20% is generally considered a low down payment which will trigger mortgage insurance.
Twenty-percent is the ideal down payment because not only do you take a chunk out of your monthly mortgage payment, but you also avoid a mortgage insurance charge being tacked on your bill each month. when you have a low down payment mortgage, you pay the same rate to the bank as someone with 20% and similar credit, but you also pay an insurance premium on top of that. Michael explains this approach stating that,
the kind of inverse system that we have here is that when the risk is removed, the lender provides a better interest rate, but that comes with a mortgage insurance premium. So there is a bit of a Catch 22 there. If you want the best rates and not paying an insurance premium, youre going to have to put down that 20%.
How Soon After My Bankruptcy Can I Apply For A Mortgage
There is a waiting period after your Chapter 7 bankruptcy is dismissed before you can apply for a mortgage. For some people, with proper management of their finances, a mortgage can be obtained in one year. For other post-petition applications, it can be much longer.
The general rule is to wait two years after your Chapter 7 bankruptcy is discharged before you can reasonably expect to qualify for a home loan.
To qualify for a bankruptcy in under two years, youll need to be able to show that your bankruptcy was necessitated by extenuating circumstances and unlikely to reoccur. You will also need to demonstrate that you can manage your finances since your bankruptcy occurred.
But different loan programs have different requirements. Once youve passed the waiting period, its time to speak with a lender about your post-bankruptcy home loan options.
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