How Bankruptcy Affects Mortgage Approval And Types Of Loan Programs

This BLOG On How Bankruptcy Affects Mortgage Approval And Types Of Loan Programs Was UPDATED On September 17th 2017

A bankruptcy is a great tool for people to utilize if they are drowning in debt and want a fresh financial start in life.

There are two forms of bankruptcy:

  1. Chapter 13 bankruptcy
  2. Chapter 7 bankruptcy. 

We will discuss Chapter 7 bankruptcy on this particular blog.

Why File Bankruptcy?

Millions of Americans have fallen victims to this country’s Great Recession where they have lost their homes or lost a substantial reduction in income which affected their overall household income.

  • Many have gone through extended periods of unemployment where they have fallen so far behind on their monthly credit obligations where they had no ways of catching up and were constantly hounded by bill collectors. 
  • Others have gotten civil judgments from credit card companies and other creditors where they were threatened with wage garnishments and bank account garnishments. 
  • For these hard working people, filing Chapter 7 bankruptcy was their only option.

Reasons Why Bankruptcy Is Necessary

Many creditors are willing to work with consumers during hardship and will offer a re-payment plan and understand that people can go through tough times during tough economic times where they have lost their jobs or had other economic events such as divorce, loss of business, or medical issues.

  • However, there are creditors who do not care and will do anything possible to collect their money via direct collection efforts or by hiring a third party collection agency.  
  • Larger collection agencies can be ruthless and will do anything and use any means to collect their debt and show no mercy. 
  • They will go for the jugular and file suit where they can obtain a civil judgment and even go to the extent to garnish the debtor’s wages and bank accounts. 
  • When this situation arises, many consumers have no other choice but to file bankruptcy.

Avoiding Bankruptcy

If a consumer have understanding creditors where they are willing to offer debt settlement or a reasonable re-payment plan, they can possibly avoid filing for bankruptcy and  see if they can work things out.

  • Many creditors are willing to work with consumers including mortgage companies, automobile finance companies, medical collectors, credit card companies, and other creditors. 
  • However, one ruthless creditor can force consumers to file for bankruptcy because they may garnish their wages. 
  • If a creditor or creditors are adamant in suing to get a judgment, consumers might be forced to file bankruptcy unless they can enter into a reasonable re-payment plan.

Judgments And How Bankruptcy Affects Mortgage Approval

Judgments are the main reason most consumers are forced to file for bankruptcy.

  • A judgment is probably the worst derogatory item you can have on credit report. 
  • A judgment will scare most lenders and creditors in granting new credit. 
  • A judgment is issued by a judge and it is a court’s decision that the debt of a creditor is valid and gives the right for a creditor to collect the judgment and place appropriate liens on their assets which includes your property. 
  • Borrowers who have assets, a judgment can pose a problem where it will enable the creditor in enforcement the civil judgment by placing liens on your assets. 
  • Borrowers who have multiple judgments, a bankruptcy might be only solution to get the judgments cleared.

Home Loan With Judgment

Mortgage lenders frown on civil judgments and most mortgage lenders will require you to have the judgment paid off before they will grant you a mortgage loan approval.

  • However, I have approved mortgage loan borrowers who had outstanding civil judgments. 
  • The only way I can offer a mortgage loan approval for folks who have civil judgments is only if the mortgage loan borrower can have a payment plan with the judgment creditor and has paid them for at least two months and can provide proof of the payment agreement and two months of cancelled checks proving that the mortgage loan borrower has made at least two payments. 
  • As long as the mortgage loan borrower can provide me with that, I can get the borrower a mortgage loan.

Getting Home And How How Bankruptcy Affects Mortgage Approval

Absolutely.  Bankruptcy is a great tool for someone to get a fresh start in life.  Once you get your bankruptcy discharged, you have zero debt.  You should start re-establishing your credit right away by getting three $500 limit or more credit limit credit cards.  You can have credit scores higher than 700 FICO after a year of filing bankruptcy if you get your credit re-established by getting three to five secured credit cards.  Home buyers will be able to get a mortgage loan exactly two years after the discharge date of your bankruptcy.  We also have a new program where home buyers can qualify for home loans with no waiting period after bankruptcy and/or foreclosure. NON-QM Loans are portfolio loans where it does require 20% down payment but has no waiting period after bankruptcy or foreclosure. Contact us at 262-716-8151. Visit our website at .

Gustan Cho NMLS ID # 873293

Related> Chapter 7 Bankruptcy

Related> Difference Between Chapter 7 And Chapter 13 Bankruptcies

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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