Can I Get Home Loan After Chapter 7 Bankruptcy?
Home Loan After Chapter 7 Bankruptcy
Bankruptcy rates soared at the start of the 2008 Real Estate and Credit Meltdown. Millions of hard working Americans have lost their jobs, businesses that have existed for decades and generations have closed their doors, whole industries like the mortgage industry have went through a major overhaul and more than half of mortgage loan originator jobs were eliminated, construction jobs went into a downward spiral, real estate offices closed their doors and top producing realtors had to find other careers. It was a mess and many folks who retired had to go back into the workforce. IRA’s, retirement accounts, and investment accounts literally got depleted. Many people who thought they had equity in their homes ended up with homes that were worth less than the amount they owed. The economy still did not recovered from the Great Recession of 2008. Unemployment numbers have improved but that is misleading because millions of Americans have given up looking for work. You do not have to see the statistics. You can just think of people you know and I am sure you know dozens of folks who have just given up looking for new jobs. Millions of Americans turned to bankruptcy to start their lives over again.
There Is Life After Bankruptcy: Qualifying For Home Loan After Chapter 7 Bankruptcy
Many folks who had perfect credit and never missed a payment in their lives were forced to bankruptcy because they lost their jobs. Losing a job is one thing but never in history of America has a recovery taken so long. To this date, 8 years after the Great Recession of 2008 the economy has not fully recovered. The great news is a bankruptcy is a federal law that protects consumers against creditors in the event of financial hardship and gives consumer the opportunity to start over and be debt free. The other great news is that there is life after bankruptcy and those who had to file bankruptcy in the past can qualify for a mortgage after bankruptcy and can again be homeowners.
Types Of Bankruptcies And Home Loan After Chapter 7 Bankruptcy
There are two types of bankruptcies
Chapter 7 Bankruptcy
The first and most common is a Chapter 7 Bankruptcy. Chapter 7 Bankruptcies benefit consumers who have a lot of unsecured debt and has little to no income. There is an income limit to qualify for a Chapter 7 Bankruptcy. If you are over a certain income threshold, you cannot file Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy will be your only alternative. Home buyers can qualify for a FHA Loan two years after a Chapter 7 Bankruptcy discharged date. Home buyers can qualify for a Conventional Loan after 4 years from a Chapter 7 Bankruptcy discharged date.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is called a debt restructuring bankruptcy. You need a job or consistent income to qualify for a Chapter 13 Bankruptcy. Consumers who have income and have sufficient equity in their home as well as other assets can file a Chapter 13 Bankruptcy where by doing so, a Bankruptcy Trustee is assigned to the petitioner and a list of all debtors and debts is reviewed. The Bankruptcy Trustee will take the petitioners monthly income and take a percentage of that income and distribute it to the list of the debtor’s creditors. This repayment plan will go on for a term of three to five years and once it is completed, it will be discharged which means the balance of all debts will be wiped out and dismissed.
Home buyers can qualify for a FHA Loan one year into a Chapter 13 Bankruptcy Repayment Plan with the approval of the Bankruptcy Trustee. There is no waiting period to qualify for a FHA Loan after a Chapter 13 Bankruptcy discharged date. However, if the Chapter 13 Bankruptcy discharge has not been seasoned at least two years, the FHA Loan needs to be manually underwritten . Verification Of Rent is required on all manual underwriting.
Qualifying For Home Loan After Chapter 7 Bankruptcy
For those who have no or very little assets, Chapter 7 Bankruptcy protects the person from further collection and eliminates all of their debts after their Chapter 7 Bankruptcy has been discharged. For those who have filed a Chapter 7 Bankruptcy, there is a 2 year mandatory waiting period from the discharge date of their Chapter 7 Bankruptcy before they are eligible to qualify for a FHA mortgage loan. There is a mandatory four year waiting period after the discharge date of a bankruptcy to qualify for a conventional loan.
Qualifying For Home Loan After Chapter 13 Bankruptcy
The second, a Chapter 13 Bankruptcy, is protection against creditors and are normally filed for folks who have assets and need time so they can restructure their debts. To be eligible for Chapter 13 Bankruptcy, you need income, whether you are a W-2 employee or own your own business. For those who have filed Chapter 13, there is a 1 year waiting period before they are eligible to qualify for a FHA insured mortgage loan. You would need the permission from the trustee of the Bankruptcy Courts. If you had your Chapter 13 Bankruptcy discharged, there is no waiting period from the Chapter 13 discharge date to qualify for a FHA insured mortgage loan. There is a two year waiting period to qualify for a FHA insured mortgage loan if you had a Chapter 13 bankruptcy dismissed. There is a two year waiting period from the Chapter 13 Bankruptcy discharge date to qualify for a conventional loan. There is a four year waiting period after a Chapter 13 dismissal date to qualify for a conventional loan.
Judgments And Other Debts
Another great benefit that bankruptcy offers is that a Chapter 7 Bankruptcy can wipe out most judgments. A judgment is probably the worst thing a person can have on their credit record and most judgments is good for 10 years. A judgment creditor can renew a judgment for another ten years and in some states, the judgment creditor can renew it a third time. A court judgment is like cancer. It can stay dormant for many years and get revived if the judgment creditor has a tip that you are beginning to make money or got your hands on assets. A judgment can be enforced and you can get your wages and bank account garnished. By filing bankruptcy, you no longer have that liability.
Qualifying For Conventional Home Loan After Chapter 7 Bankruptcy
If you included your mortgage as part of your bankruptcy, the waiting period to qualify for a conventional loan starts from the discharge date of your Chapter 7 Bankruptcy. Prior to this new Fannie Mae guideline on mortgage part of bankruptcy, the waiting period for those who had mortgage part of bankruptcy started from the recorded date when the deed was transferred out of the homeowners name into the name of the mortgage lender which sometimes took years after the discharge date of the bankruptcy. Bottom line is that if you have a mortgage part of bankruptcy, the waiting period for both the foreclosure and bankruptcy starts from the discharge date of the bankruptcy and you can qualify for a conventional loan four years from the discharge date of the your bankruptcy. The foreclosure recorded date can be at a much later date than the discharged date of the Chapter 7 Bankruptcy and that does not matter. The waiting period is four years from the discharged date of the Chapter 7.
