HUD Chapter 13 Bankruptcy Guidelines

This BLOG On HUD Chapter 13 Bankruptcy Guidelines Was Written By Gustan Cho

HUD Chapter 13 Bankruptcy Guidelines states the FHA Loan Requirements for the following:

  • HUD Chapter 13 Bankruptcy Guidelines states the FHA Loan Requirements for borrowers who are in progress in a Chapter 13 Bankruptcy Repayment Plan
  • HUD Chapter 13 Bankruptcy Guidelines states the FHA Loan Requirements for borrower who have just had their Chapter 13 Bankruptcy discharged
  • HUD, the United States Department of Housing and Urban Development, is the parent of the Federal Housing Administration or FHA.
  • FHA is not a mortgage lender. FHA is a division of HUD where its role and purpose is to insure private FHA approved mortgage lenders who follow FHA guidelines. If banks and mortgage lenders who are FHA approved lender follow FHA Guidelines , FHA will insure those banks and mortgage lenders in the event if the FHA Borrowers defaults on their FHA Loans and goes into foreclosure.

HUD Guidelines On Bankruptcy

HUD is the parent of FHA. FHA is not a mortgage lender but a government agency under the United States Department of Housing and Urban Development and sets the FHA Guidelines After Bankruptcy . Borrowers can qualify for FHA Loans after bankruptcy. There are two types of Bankruptcies for consumers:

  • Chapter 7 Bankruptcy: Chapter 7 Bankruptcy is also called total liquidation. There are requirement in qualifying for Chapter 7 Bankruptcy. Consumers have a maximum amount of money they can make in order to qualify for a Chapter 7 Bankruptcy and all of their assets needs to be disclosed. Chapter 7 Bankruptcy are best suited for consumers who are unemployed and have little to no assets and are downing in debt. Once you file a Chapter 7 Bankruptcy, the Bankruptcy Trustee will review all the assets and debts and all of the consumer’s debts are normally discharged in 90 days. A Chapter 7 Bankruptcy discharge will wipe out all of the consumer’s debts and the consumer will be debt free after the Chapter 7 Bankruptcy discharge. Borrowers can qualify for a FHA Loan two years after a Chapter 7 Bankruptcy discharged date with re-established credit and no late payment history after the Chapter 7 Bankruptcy discharged date.
  • Chapter 13 Bankruptcy: A Chapter 13 Bankruptcy is when the Bankruptcy Courts appoints a Chapter 13 Bankruptcy Trustee where the Trustee will go over the petitioner’s gross income and take a percentage of their income and use that portion to pay the consumer’s creditors. A repayment plan of normally 60 months is set up by the Chapter 13 Bankruptcy Trustee and after that repayment period is over, the remaining debts will be discharged by the Bankruptcy Courts. Borrowers can qualify for a FHA Loan while they are in the repayment period of the Chapter 13 Bankruptcy as well as the discharged date of the Chapter 13 Bankruptcy which we will cover in the following paragraphs.

FHA Guidelines On Chapter 13 Bankruptcy

There are two ways of qualifying for FHA Loan for borrowers on Chapter 13 Bankruptcy.

  • Borrowers who are currently in a Chapter 13 Bankruptcy Repayment Plan can qualify for a FHA Loan one year into a Chapter 13 Bankruptcy
  • Borrowers who have had their Chapter 13 Bankruptcy Discharged can qualify for a FHA Loan on day after their Chapter 13 Bankruptcy discharged date. Unfortunately, most mortgage lenders have mandatory waiting period after a Chapter 13 Bankruptcy discharged date of one to two year waiting period after the discharged date although¬†HUD Chapter 13 Bankruptcy Guidelines states that there is no waiting period required

HUD Bankruptcy Guidelines During Chapter 13 Repayment Period

HUD Chapter 13 Bankruptcy Guidelines to qualify for a FHA Loan for borrowers while they are in an active Chapter 13 Repayment Period is a follows:

  • Borrowers who are currently on a Chapter 13 Bankruptcy Repayment period can qualify for a FHA Loan one year into the Chapter 13 Bankruptcy Repayment period but the FHA Loan needs to be manually underwritten
  • Verification of Rent is required with manual underwriting¬†
  • 12 months of timely payments to all creditors needs to be provided to the lender
  • Chapter 13 Bankruptcy Trustee Approval required
  • Compensating Factors required
  • No late payments in past 12 months

HUD Bankruptcy Guidelines After Chapter 13 Bankruptcy Discharged

HUD Bankruptcy Guidelines After Chapter 13 Bankruptcy Discharged Date states that no mandatory waiting period is required. Here are the guidelines:

  • No waiting period is required to qualify for a FHA Loan after a Chapter 13 Bankruptcy discharged date
  • All borrowers who had a Chapter 13 Bankruptcy discharge and has not met a two year waiting period after the Chapter 13 Bankruptcy discharged date, they will qualify for a FHA Loan, however, it needs to be manually underwritten
  • All manual underwriting requires VOR, which is verification of rent

Issues With Qualifying For FHA Loan After Chapter 13 Bankruptcy Discharge

Most FHA mortgage lenders have issues with approving FHA Loans right after a Chapter 13 Bankruptcy discharged date. Most mortgage lenders will have lender overlays after Chapter 13 Bankruptcy discharge date by requiring the following:

  • There is NO WAITING PERIOD to qualify for FHA Loan after Chapter 13 Bankruptcy discharged date
  • However, if the borrower had a Chapter 13 Bankruptcy discharge that has not been seasoned for at least two years, then the mortgage loan needs to be a manual underwriting
  • Most mortgage lenders will set mandatory waiting period after discharged date of Chapter 13 Bankruptcy discharged date of at least one year waiting period or two year waiting period after the Chapter 13 Bankruptcy discharged date. This is not a HUD Chapter 13 Bankruptcy Guidelines but a mortgage lender overlay on behalf of the individual lender

If you are in a Chapter 13 Bankruptcy Repayment Plan or have just been discharged of your Chapter 13 Bankruptcy and need further information in qualifying for a FHA Loan, please contact Gustan Cho at 262-716-8151 or email us at gcho@gustancho.com.

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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