Chapter 13 Bankruptcy Mortgage Guidelines And Requirements
This BLOG On Chapter 13 Bankruptcy Mortgage Guidelines Was UPDATED And PUBLISHED On March 16th, 2020
Chapter 13 Bankruptcy Mortgage Guidelines
Under Chapter 13 Bankruptcy Mortgage Guidelines, borrowers can qualify for VA Home Loans and FHA Loans during and after Chapter 13 Bankruptcy.
- However, not all lenders follow the minimum Chapter 13 Bankruptcy Mortgage Guidelines
- Only lenders with no mortgage overlays on VA and FHA Loans will follow Chapter 13 Bankruptcy Mortgage Guidelines on FHA Loans and VA Loans
- Most lenders will require a two-year waiting period after Chapter 13 Bankruptcy discharged date on VA Loans and FHA Loans
- Gustan Cho Associates has no overlays on Chapter 13 Bankruptcy Mortgage Guidelines
- We will just go off the minimum Chapter 13 Bankruptcy Mortgage Guidelines on FHA and VA Home Loans
In this article, we will cover and discuss qualifying for a mortgage during and after Chapter 13 Bankruptcy.
How Does Chapter 13 Bankruptcy Process Work?
Chapter 13 Bankruptcy is normally ideal for someone who has a job and assets but is overwhelmed with debt. The courts appoint a bankruptcy trustee where a debt repayment plan is structured where the petitioner has a new affordable payment. The Trustee decides a percentage of the petitioners’ debts that get allocated and distributed in paying the debts of creditors.
- The petitioner will pay all or part of his or her debt over the course of 3 to 5 years
- Chapter 13 Bankruptcy is different than a Chapter 7 Bankruptcy
- Chapter 7 Bankruptcy, all of the debts get eliminated and all of the assets get liquidated to pay off creditors
- Consumers can still keep their home with a Chapter 13 Bankruptcy even if they have plenty of equity in their home
- Petitioners can also keep their home with a Chapter 7 Bankruptcy
- But there may be issues if they have a lot of equity with Chapter 7
- With little or no equity, petitioners can hold on to their home and make regular mortgage payments with a Chapter 7 Bankruptcy
Due to the fact that they will end up paying debts over the course of time, Chapter 13 Bankruptcy is also known as reorganization bankruptcy or restructuring of debts.
Basics Of Chapter 13 Bankruptcy Mortgage Guidelines
Chapter 13 Bankruptcy is not beneficial to everyone who is in debt. Many consumers contemplating filing bankruptcy think that bankruptcy is the end of the world. Many believe they can never get a mortgage after bankruptcy. Under Chapter 13 Bankruptcy Mortgage Guidelines, homebuyers can qualify for FHA and VA Loans during and after Chapter 13 Bankruptcy. Conventional Loans require two year waiting period after Chapter 13 Bankruptcy discharged date.
- First of all, petitioners need consistent regular income in order to be eligible for Chapter 13 Bankruptcy
- This is to make sense since they will be making payments to creditors with a percentage of monthly income
- The reason people file Chapter 13 Bankruptcy is to protect assets and buy time in paying creditors at a reduced affordable amount
- Many file a 13 because they want to protect their home and other personal assets
For those with no income, Chapter 7 Bankruptcy is the route to go.
Qualification Requirements For Chapter 13 Bankruptcy
To qualify for a Chapter 13 Bankruptcy, a person needs solid full-time employment. Unemployed people cannot qualify to file Chapter 13 Bankruptcy.
- The secured debts allowed cannot surpass $1,149,525
- The petitioner’s unsecured debts cannot exceed more than $383,175
Chapter 13 Bankruptcy Process
Anyone that wants to go through a bankruptcy filing needs to complete a credit counseling course from a credit counseling provider which is on the approved list from the United States Trustee’s Office.
- Remember that a Chapter 13 Bankruptcy is a debt restructuring and repayment plan where it makes a monthly payment to creditors affordable
- It will detail how much each creditor gets each month for a certain period of time
- There are certain debts that the balance cannot be discounted and be paid in full and are classified as priority debts
Examples of priority debts include wages that are owed to the following:
- Government loans such as student loans, income taxes
- Child support
Secondary debts include the following:
- Mortgage payments that are in arrears
- Car payments that are in arrears
- Other debts that are in arrears
After the secured debts are paid and if petitioners have disposable income left over after making the required minimum payments to creditors, the disposable income will go towards paying debts that are unsecured such as medical bills and unsecured credit cards:
- These creditors do not have to be repaid in full
- But an attempt needs to be shown of making a good effort in trying to repay them with disposable income
How Long Do I Have To Repay My Creditors?
The length of time for repayment of creditors depends much on the amount of money petitioner earns and the number of debts they owe to creditors.
- If six-month average gross income prior to filing for Chapter 13 bankruptcy is more than state’s median income, then repayment period might be a 5-year repayment plan
If a six-month average gross income prior to filing is lower than the state’s median income, then it will probably have a 3-year repayment plan.
Chapter 13 Dismissal Versus Discharge
In the event if petitioner were to lose job or cannot work due to medical reasons during Chapter 13 payment plan period and cannot make minimum monthly payments to creditors, the trustee will restructure payment plan again. Or the trustee can ask permission from the courts to see if they can discharge the debts owed to creditors due to financial hardship.
- In the event, if the courts will not discharge debts due to financial hardship, an alternative might be to convert Chapter 13 to a Chapter 7 bankruptcy and request the courts to dismiss Chapter 13 Bankruptcy
Finalization Of Chapter 13 Bankruptcy
Upon completion of the repayment plan to creditors, all balances remaining on debts are normally discharged. The balance of the debts will no longer be owed and the petitioner is discharged of all debts and will no longer owe any creditors.
- Prior to complete discharge of Chapter 13, all non-exempt debts such as income taxes, alimony, child support, and government loans are in good standings and current
- An approved budget counseling course that is approved with the United States Trustee is also required
Qualifying For A Mortgage During Chapter 13 Bankruptcy
A home buyer can qualify for both VA Home Loans and FHA Loans one year into a Chapter 13 repayment plan with the trustee’s permission.
- The trustee needs the bankruptcy court’s approval and the new payment needs to be figured in. Almost all Trustees approve a home loan during bankruptcy
- There is no waiting period after Chapter 13 Bankruptcy discharged date to qualify for VA Home Loans and FHA Loans
- Not too many lenders will approve for FHA and VA Loans during and after Chapter 13 Bankruptcy
- Most lenders have overlays on FHA and VA Loans with Chapter 13 Bankruptcy
- They often require a two year waiting period after Chapter 13 Bankruptcy in order for borrowers to qualify with them
- This is not a VA Guidelines nor a HUD Guidelines
- Both FHA Guidelines and VA Guidelines allow borrowers to qualify for home loans during and after Chapter 13 Bankruptcy discharge with no waiting period
Homebuyers who need to qualify for VA Home Loans and/or FHA Mortgage Loans during or after Chapter 13 Bankruptcy, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected] There is a two-year waiting period to qualify for Conventional Loans after Chapter 13 Bankruptcy discharged date.