One of the most frequently asked questions is what it takes to get a mortgage during or after Chapter 11 Bankruptcy. It’s possible to get a mortgage after filing Chapter 11. The only two mortgage loan programs borrowers can qualify for during the Chapter 11 Bankruptcy repayment plan are FHA and VA loans.
To get an FHA or VA mortgage during a Chapter 11 bankruptcy repayment plan, you must make at least 12 on-time monthly payments into the plan. In the following paragraphs, we will discuss qualifying for a mortgage during and after Chapter 11 Bankruptcy, Chapter 12 Bankruptcy, and Chapter 13 Bankruptcy.
You can qualify for FHA and VA loans during Chapters 11, 12, and 13 Bankruptcy with a manual underwriting with trustee approval one year after filing. You need to have been timely on all monthly bankruptcy payments to creditors and need trustee approval. The bankruptcy does not have to be discharged to qualify for an FHA or VA loan during Chapters 11, 12, or 13 Bankruptcy repayment plan.
In the following paragraphs, we will be covering qualifying for FHA loan during Chapter 11 Bankruptcy, FHA loan during Chapter 12 Bankruptcy, and FHA loan during Chapter 13 Bankruptcy repayment plans.
FHA or VA Loan During Chapter 11 Bankruptcy Repayment Plan
Chapter 11 Bankruptcy does not need to get discharged. You need to get approval from the bankruptcy trustee. The waiting period is two years after discharge for conforming (Fannie Mae and Freddie Mac) loans. FHA and VA loans are the only two mortgage loan programs that allow home loans during Chapter 11 Bankruptcy repayment plans, says Dale Elenteny of Gustan Cho Associates:
HUD and the Veterans Affairs allow borrowers of FHA and VA loans to qualify for an FHA or VA loan during Chapters 11, 12, or 13 Bankruptcy repayment plan. It needs to be a manual underwrite and you cannot be late on any payments to the bankruptcy courts.
Fannie Mae or Freddie Mac do not allow borrowers to qualify for a conventional loan during the Chapter 11 Bankruptcy repayment period. Non-QM or non-prime loans require no waiting period after the Chapter 11 Bankruptcy discharge date. Your debt-to-income ratio, credit score, on-time payment history, during the Chapter 11 Bankruptcy payment period, down payment, and assets must also meet the loan program guidelines you choose.
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What are the Seasoning Requirements for FHA Loans?
Seasoning requirements for FHA loans refer to the waiting periods borrowers must adhere to after certain financial events, such as bankruptcies, foreclosures, or short sales, before being eligible for an FHA-insured mortgage. These requirements help ensure that borrowers have demonstrated responsible financial behavior and stability before obtaining new financing. The seasoning requirements for FHA loans are as follows:
- Bankruptcy:
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- Chapter 7 bankruptcy: Borrowers who have declared Chapter 7 bankruptcy may need to wait for a minimum of two years following discharge before meeting the criteria for an FHA loan.
- Chapter 13 bankruptcy: If a borrower has made satisfactory payments for at least one year and has written consent from the bankruptcy court to enter into a mortgage deal, they might qualify for an FHA loan during the repayment period.
- Foreclosure:
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- Borrowers must typically wait at least three years from the foreclosure completion date before being eligible for an FHA loan.
- Short Sale:
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- Borrowers who experienced a short sale must typically wait at least three years from the sale date before being eligible for an FHA loan.
It’s important to note that these are general guidelines, and exceptions may apply based on extenuating circumstances or specific lender overlays. Borrowers should consult with an FHA-approved lender to understand their eligibility and any additional requirements. Additionally, borrowers must meet all other FHA loan requirements, including credit score, income, and debt-to-income ratio criteria.
Qualifying for a Mortgage After Bankruptcy Chapter 11 Bankruptcy
Consumers can qualify for a home loan after bankruptcy. We have covered qualifying for a mortgage after Chapter 7 and Chapter 13 Bankruptcy. Chapter 11 bankruptcy is another option for consumers who may not be eligible for Chapter 7 or Chapter 13 bankruptcy. Chapter 11 bankruptcy is more common for businesses.
FHA Chapter 12 Bankruptcy Guidelines are similar to FHA Chapter 13, except the petitioners are farmers or fishermen. Individuals can file Chapter 11 bankruptcy and Chapter 12 Bankruptcy personally and qualify for FHA and VA loans during Chapters 11, 12, and 13 Bankruptcy repayment plans.
What Is the Chapter 11 Repayment Plan?
Chapter 11 is a debt reorganization program for businesses and individuals with extensive real estate investments and large amounts of unsecured debt. Chapter 11 is less common than Chapter 7 and 13 bankruptcy and is more time-consuming. Businesses that want to keep operating need time to reorganize their debts and use Chapter 11 bankruptcy to return to profitability.
How Can You File Chapter 11 Bankruptcy
You can file for Chapter 11 bankruptcy voluntarily In the US. Bankruptcy Court. However, three or more creditors working together can also force a business into Chapter 11. Once you file, creditors must temporarily stop collection actions against you. You get four months to come up with a restructuring plan.
If you need more time, the court can grant an 18-month extension. After this period expires, your creditors can propose their restructuring plan to the court. The restructuring plan directs how you will run your business and specifies the amount you’ll pay your creditors. Common restructuring plans include consolidation, downsizing, and liquidation of certain assets.
Does Chapter 11 Wipe Out All Debt?
Chapter 11 bankruptcy does not necessarily wipe out all debt. Instead, it allows a business to reorganize its debts and operations while remaining in operation. The process involves creating a plan to repay creditors over time, often with reduced amounts or extended payment terms. Some debts may be discharged or reduced, but not all are automatically eliminated through Chapter 11 bankruptcy.
Individuals can also file Chapter 11 bankruptcy, but it is less prevalent than Chapter 7 or Chapter 13 bankruptcy, which individuals use more commonly. Certain debts can be completely discharged in Chapter 7 bankruptcy, whereas in Chapter 13 bankruptcy, individuals must pay back a portion of their debts in an organized timeframe. Click here to qualify for a mortgage in chapter 1 bankruptcy
How Does The Bankruptcy Process Work?
Once you file for Chapter 11 bankruptcy, the creditors can accept or contest your petition. Most creditors are willing to accept a Chapter 11 petition because they usually get more than they would with a Chapter 7 liquidation bankruptcy. There are three types of bankruptcy creditors:
- Priority creditors
- Secured creditors
- Unsecured creditors
Priority debts include employee wages, alimony and child support obligations, and taxes. These things are not generally dischargeable in bankruptcy. Secured debts are loans backed by assets. In Chapter 11, you may ask for court approval to pay the property’s current value instead of what you owe.
If creditors don’t approve your petition, you can ask the judge for a “cramdown.” That means asking the judge to force your creditors to accept your proposal. It’s called a “cram down” because you ask the judge to cram the plan’s terms down the non-accepting creditor’s throat.
How Long Are Chapter 11 Repayment Plans Versus Chapter 13 Bankruptcy
While Chapter 13 repayment plans are normally 60 months, Chapter 11 repayment times are open. However, most Chapter 11 repayment plans do not exceed 24 months. The filing costs and fees for Chapter 11 are substantially more than Chapters 7 and 13. Just filing fees on Chapter 11 are $1,717. You then add attorney fees ranging from a few thousand to millions for large businesses.
Chapter 11 for Real Estate Investors
Chapter 11 is a powerful tool because you can use it to restructure your mortgages. For example, if you own a property worth $100,000 but owe $200,000 on the loan. Filing Chapter 11 allows you to reduce the mortgage’s principal balance from $200,000 to $100,000. Chapter 11 can also allow you to reduce the interest rate and extend the repayment term to another 360 months (30 years). This reduces your monthly mortgage payment.
Choosing Chapter 11 Personal Bankruptcy
This section will discuss why consumers choose Chapter 11 versus Chapter 7 or 13 bankruptcy. Filers can use their income to repay some or all of their obligations while enjoying protection from collections efforts and lawsuits. Chapter 11 benefits consumers with too much-unsecured debt (more than the $419,275 allowed for Chapter 13 bankruptcy).
Chapter 11 helps real estate investor restructure their mortgages and become profitable again. A Chapter 11 Bankruptcy can be the best choice for high earners with large real estate assets or unsecured debts.
FHA Chapter 11 vs. Chapter 13 Bankruptcy Guidelines on FHA Loans
Both Chapter 11 and Chapter 13 Bankruptcy are federal restructuring debt repayment programs. With Chapter 13 bankruptcy, consumer-secured debts cannot exceed $1,184,200. Unsecured debts cannot exceed $419,275 to qualify for Chapter 13 bankruptcy.
Alex Carlucci is an expert in helping borrowers in an active Chapter 11 or Chapter 13 Bankruptcy qualify and get approved for an FHA loan. Here is what Alex Carlucci said about FHA Chapters 11, 12, and 13 Bankruptcy Guidelines:
Borrowers can qualify for FHA loans under FHA Chapter 12 Bankruptcy, FHA CHAPTER 11 BANKRUPTCY, and FHA CHAPTER 13 BANKRUPTCY GUIDELINES. The guidelines are all the same. You can qualify for an FHA loan if you are under the Chapter 11, 12, 13 Bankruptcy repayment plan one year into the plan with trustee approval.
A trustee is always appointed in Chapter 13 repayment plans, unlike Chapter 11. The role of the trustee is to review and propose a repayment plan, collect the payments, and pay the creditors. The trustee can dismiss and convert Chapter 13 to Chapter 7 bankruptcy. The trustee reports directly to the bankruptcy court judge.
The list of creditors does not have the right to vote on the restructuring plan as they do with Chapter 11. The repayment period ranges from 36 to 60 months. Once you have made your payments on time for the required period, any remaining debts are discharged and wiped out.
What are the Extenuating Circumstances for FHA Loans?
Extenuating circumstances for FHA loans refer to specific situations that may have led to financial hardship or credit issues but are considered beyond the borrower’s control. These circumstances may include:
- Serious illness or injury affected the borrower’s ability to work and earn income.
- Loss of employment or significant income reduction due to company downsizing, closure, or industry downturn.
- Divorce or legal separation resulting in financial strain or loss of income.
- The death of a primary wage earner contributes to financial instability.
- Natural disasters or other catastrophic events that caused property damage or financial distress.
- Bankruptcy, but only under specific conditions and with evidence of responsible financial behavior since the bankruptcy discharge.
- Certain economic events or changes in income beyond the borrower’s control, such as a significant decrease in property value or rental income.
When borrowers experience extenuating circumstances, they may be eligible for an FHA loan sooner than the standard waiting period after significant credit events, such as foreclosure or bankruptcy. However, borrowers must provide documentation and evidence to demonstrate the extenuating circumstances and their efforts to recover financially. Click here to qualify for a FHA mortgage today
The exact requirements and waiting periods may vary, so consulting with an FHA-approved lender for specific guidance is essential.
Mortgage Waiting Periods After Chapter 11 Bankruptcy Discharge
There is no waiting period after Chapters 11, 12, and 13 Bankruptcy discharge date on FHA loans. However, if the discharge has not been seasoned for two years, it needs to be a manual underwrite. Manual underwriting is similar to automated underwriting system but has reduced front-end and back-end debt-to-income ratio caps, says Dustin Dumestre of Gustan Cho Associates:
FHA manual underwriting debt-to-income ratio guidelines depends on the number of compensating factors the borrower has. Mortgage underwriters have a lot of underwriter discretion on FHA and VA manually underwritten files.
Most programs’ waiting periods following Chapter 11 and Chapter 13 are the same. HUD allows mortgage eligibility after 12 months of on-time payments if the bankruptcy judge approves, and no waiting period after discharge. VA home loans are allowed after 12 months of on-time payments and trustee /judge approval with no waiting period after discharge.
Fannie Mae and Freddie Mac Guidelines After Chapter 11 Bankruptcy
Conforming (Fannie Mae and Freddie Mac) lenders require a two-year waiting period after Chapter 11 discharge and a four-year wait after Chapter 11 dismissal—mortgage applications after recent bankruptcy filings may require manual underwriting, which can be stricter than automated underwriting. Non-QM loans are not standard. Many non-prime lenders have no waiting periods following bankruptcy.
Qualifying for a Mortgage After Bankruptcy
Gustan Cho Associates are experts in helping borrowers qualify for a mortgage after bankruptcy. In addition, Cho Associates has no lender overlays for government and conventional loans. (Lender overlays are additional requirements that many lenders pay on top of program guidelines. They make it harder to qualify.) PClick here to qualify for a mortgage after bankruptcy with Gustan Cho Associates
National Reputation of Being Able To Close Loans Other Lenders Cannot Do
Over 80% of our borrowers could not qualify with other lenders. For more information about qualifying with a mortgage company with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. We have a national reputation as a one-stop mortgage shop and can do loans other lenders cannot.
Mortgage Lender Licensed in 48 States With Over 210 Wholesale Lenders
Gustan Cho Associates are experts on commercial loans, business loans and residential loans. We have a national reputation for being a one-stop-lending shop. We specialize in government and conventional loans with no lender overlays and have over 210 wholesale mortgage lenders in our network. We have hundreds of non-QM and alternative financing loan programs on owner-occupant, second homes, and investment property mortgages. Some of our most popular non-QM loan programs include:
- Mortgages one day out of bankruptcy
- >Bank statement mortgages
- Asset-depletion loans
- P & L non-doc stated income loans
- Fix and flip loans for real estate investors
- Other alternative loan programs.
Gustan Cho Associates are mortgage brokers licensed in 48 states, including Puerto Rico, Washington, DC, and the U.S. Virgin Islands. Over 80% of our clients are folks who could not qualify at other mortgage companies due to lender overlays or because the lender did not have the mortgage product best suited for the borrower. The team at Gustan Cho Associates is available seven days a week, on evenings, weekends, and holidays. If you have any questions on the content of this guide or need to qualify for a mortgage loan, please contact us at Gustan Cho Associates at 800-900-8569. Or text us for a faster response. You can also email us at gcho@gustancho.com.
FAQ: Chapter 11 Bankruptcy Guidelines on FHA and VA Loans
1. Can I get a mortgage during or after Chapter 11 Bankruptcy? Yes, obtaining a mortgage during or after Chapter 11 Bankruptcy is possible. FHA and VA loans are the only two mortgage loan programs available during the Chapter 11 Bankruptcy repayment plan.
2. What are the requirements for getting an FHA or VA loan during Chapter 11 Bankruptcy? To be eligible for an FHA or VA mortgage while in Chapter 11 Bankruptcy, making a minimum of 12 monthly payments within the bankruptcy repayment plan is mandatory. Additionally, you need trustee approval, and the bankruptcy does not necessarily need to be discharged.
3. Are there other mortgage options available during Chapter 11 Bankruptcy? FHA and VA loans are the only mortgage loan programs available during Chapter 11 Bankruptcy repayment plans. Fannie Mae or Freddie Mac does not offer conventional loans, but non-QM or non-prime loans could be considered an option after the bankruptcy discharge.
4. What about the waiting periods for FHA loans after bankruptcy? The waiting periods for FHA loans after bankruptcy vary depending on the type of bankruptcy. For Chapter 7 bankruptcy, borrowers typically must wait two years from the discharge date. For Chapter 13 bankruptcy, borrowers may qualify after one year of satisfactory payments with trustee approval.
5. What are extenuating circumstances, and how do they affect FHA loan eligibility? Extenuating circumstances refer to situations beyond the borrower’s control that led to financial hardship or credit issues. Borrowers experiencing extenuating circumstances may be eligible for an FHA loan sooner than the standard waiting period after significant credit events, such as bankruptcy or foreclosure.
6. How does the Chapter 11 bankruptcy process work? Businesses and individuals can continue their operations while reorganizing their debts through Chapter 11 bankruptcy. This type of bankruptcy allows for the restructuring of financial obligations and operational procedures. It involves creating a repayment plan approved by the bankruptcy court, which may include reducing debts, extending payment terms, or liquidating assets.
7. Does Chapter 11 bankruptcy wipe out all debts? Chapter 11 bankruptcy does not necessarily wipe out all debts. Instead, it allows for the reorganization of debts and operations, often resulting in reduced or extended payment terms. Some debts may be discharged, but none are automatically eliminated through Chapter 11 bankruptcy.
8. What are the differences between Chapter 11, Chapter 12, and Chapter 13 bankruptcy? Chapter 11 bankruptcy is frequently utilized by individuals or businesses with significant real estate investments and substantial unsecured debt. Chapter 12 bankruptcy, on the other hand, is similar to Chapter 13 but is tailored specifically for farmers or fishermen.
Lastly, Chapter 13 bankruptcy is a program for individuals with consistent income who desire to repay their debts over time. This program centers on the reorganization of debt.
9. How long do Chapter 11 repayment plans last? Chapter 11 repayment plans can vary, but most are at most 24 months. However, the repayment period for Chapter 13 bankruptcy is typically 60 months.
10. What mortgage options are available after a bankruptcy discharge? After bankruptcy discharge, borrowers may be eligible for various mortgage options, including FHA, VA, conventional, or non-QM loans. The specific waiting periods and eligibility criteria may vary depending on the type of bankruptcy and the lender’s requirements.
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This blog about Chapter 11 Bankruptcy Guidelines on FHA and VA Loans was updated on March 14, 2024.
I would like to talk to a loan officer to see if I might qualify for a loan of approx $$1,200,000. I am currently in Chapter 11 sub 5. Office #423-745-9789 or cell 423-887-4609. I will be available next week Mon-Fri. by phone or email. Thank you.
Please contact Alex Carlucci at 630-915-7550 or email Alex at alex@gustancho.com.