fbpx

Chapter 13 Bankruptcy Mortgage Guidelines And Requirements

Chapter 13 Bankruptcy Mortgage Guidelines

This BLOG On Chapter 13 Bankruptcy Mortgage Guidelines Was UPDATED On January 20th, 2019

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 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

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 debts get eliminated and all of 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, home buyers 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 monthly payment to creditors affordable
  • It will detail on 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:
    • Employees
    • Government loans such as student loans, income taxes
    • Child support
    • Alimony
  • 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 amount 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 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 repayment plan to creditors, all balance 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 need the bankruptcy courts 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

Home buyers who need to qualify for VA Home Loans and/or FHA Mortgage Loans during or after Chapter 13 Bankruptcy, please contact The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. There is a two year waiting period to qualify for Conventional Loans after Chapter 13 Bankruptcy discharged date.

Comments are closed.

CALL NOW