Mortgage Guidelines After Chapter 7 Bankruptcy On Home Purchase

Mortgage Guidelines After Chapter 7 Bankruptcy On Home Purchase

This BLOG On Mortgage Guidelines After Chapter 7 Bankruptcy On Home Purchase Was UPDATED On January 24th, 2018

Home Buyers can qualify for home loans after bankruptcy if they meet mortgage guidelines after Chapter 7 Bankruptcy.

  • Under Mortgage Guidelines After Chapter 7 Bankruptcy, there are mandatory waiting period requirements after discharged date to qualify for government and/or conventional loans
  • Under government and conventional Mortgage Guidelines After Chapter 7 Bankruptcy, borrowers can qualify for home loans with no late payments after discharged date and re-established credit

What Is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is a federal law where people in debt can get a fresh start and have the opportunity to discharge all of their debt. Those thinking of filing Chapter 7 Bankruptcy needs to pass the Chapter 7 Bankruptcy Means Test.

  • Once someone files for Chapter 7 bankruptcy, all creditors and debt collectors cannot pursue any debt collection activities
  • A bankruptcy trustee gets appointed where he or she reviews the list of all creditors and the petitioner’s assets
  • If there are assets of value, non-exempt assets, it gets liquidated to pay creditors
  • The bankruptcy petitioner can keep exempt assets such as a limited amount of cash, home, auto, and limited amount of personal assets
  • Chapter 7 bankruptcy is also known as straight bankruptcy and/or liquidation bankruptcy
  • People that file Chapter 7 bankruptcy are those with little or no assets and a lot of debts and judgments

What Can Be Discharged In Chapter 7 Bankruptcy

Most debts can be discharged with a Chapter 7 Bankruptcy:

  • Chapter 7 bankruptcy does not discharge government debts such as delinquent income taxes and student loans
  • Child support is not allowed to be discharged in Chapter 7 bankruptcy either
  • Medical bills, credit card bills, deficiency judgments, and other unsecured/secured debts are all allowed to be discharged in a Chapter 7 bankruptcy
  • Those who get a Chapter 7 discharge no longer owe any creditor any more money and has a fresh financial start in life
  • Judgments that is not government debt can be discharged under Chapter 7 Bankruptcy

Chapter 7 Bankruptcy Process

A Chapter 7 Bankruptcy normally takes from three to six months from the filing date to the discharge date.

  • The cost to file a Chapter 7 Bankruptcy is normally $300
  • Bankruptcy petitioners will normally pay anywhere between $1,000 to $3,000 depending on which bankruptcy attorney they use
  • The majority of the bankruptcy costs are for the services of the bankruptcy attorney

Qualifying For Chapter 7 Bankruptcy

Someone filing for Chapter 7 bankruptcy must complete an approved course of credit counseling which need to be approved by the United States Bankruptcy Trustee.

  • As mentioned earlier, the day bankruptcy petition is filed, an order of relief goes into effect immediately which is an automatic stay
  • This automatic stay that goes into effect the date the bankruptcy petition is file immediately stops all of creditors
  • Debt collectors from pursuing any collection activities
  • It is a cease and desist order and it is illegal for any creditors or debt collectors even contacting consumers
  • Creditors and debt collectors cannot garnish wages or bank accounts and they cannot lien any of assets or properties that petitioners own

Role Of Bankruptcy Trustee

When someone files for bankruptcy, a trustee is in charge of petitioners financial affairs:

  • Bankruptcy petitioners cannot sell or give away any of property without the consent of the bankruptcy trustee
  • The trustee’s role is oversee and audit assets and debts and see the most he or she can pay creditors if petitioners have any assets that can be liquidated
  • Most who file Chapter 7 bankruptcy have little or no assets
  • The trustee will review personal financial statements, tax returns, and bank statements to see if you had liquidate assets prior to bankruptcy filings and see if petitioner are hiding any assets
  • The trustee will call for a creditor’s meeting
  • Few weeks of bankruptcy filing all creditors that are listed on bankruptcy petition will receive notice of a creditors meeting
  • The bankruptcy trustee is in charge of the meeting if any creditors show up
  • Petitioners who have little or no assets, the chances are that no creditors will show up
  • In the event if the bankruptcy trustee finds that they have non exempt property, the trustee can require to surrender it
  • If the non exempt properties is not worth any value or owe more than what it is worth, the bankruptcy trustee can disregard the non exempt property
  • Or let the petitioner keep the property if they do not want to include it as part of their bankruptcy

Personal Home And Secured Liabilities In Bankruptcy

Homeowners can keep home and still file bankruptcy.

  • Homeowners who are behind on mortgage payments and are in foreclosure proceedings, filing bankruptcy will put an automatic stay on foreclosure proceedings
  • Mortgage lender can ask the trustee to lift the automatic stay so they can proceed with the foreclosure proceedings as well
  • Homeowners who are current on mortgage payments and plan on keeping house, they can exclude mortgage from the bankruptcy and continue making payments and still keep home
  • Same as with any vehicles
  • Bankruptcy petitioners with automobile loan and are current on payments can keep their cars
  • They can exclude the automobile loan from the bankruptcy and continue to make auto payments and keep vehicle
  • A lien or judgment against home or car can be wiped out in a bankruptcy

Chapter 7 Bankruptcy Discharge

After three to six months, the final outcome wanted is a bankruptcy discharge. Discharge is where all of debts on Chapter 7 bankruptcy petition is discharged and are no longer responsible for debts except the following debts:

  • Government debts:  
    • Income taxes
    • Student loans
    • Child support debts are not discharged
    • Petitioners are still responsible to pay them
  • Fraud: 
    • Debts that creditors have objected to the bankruptcy trustee and the bankruptcy trustee deemed it non-dischargeable  debts because the creditors and debt collectors provided proof that it was fraud

Qualifying For Home Loans And What Are Mortgage Guidelines After Chapter 7 Bankruptcy

Declaring bankruptcy is not the end of the world and often times is better than having to struggle to make payments on debts that cannot be covered with monthly income.

There are many reasons why people file bankruptcy.

  • Job Loss
  • Termination of employment
  • Medical
  • Divorce
  • Death
  • Extenuating Circumstances

Outcome Of Bankruptcy

  • Bankruptcy gives consumers a fresh start in life
  • Most people start re-establishing their credit from the discharge date of their bankruptcy
  • Many ave credit scores of over 700 a year after their discharge date
  • Best way to re-establish credit after a bankruptcy is by getting three $500 credit limit secured credit cards
  • Each credit card will boost credit scores by 30 or more points over the course of the year
  • Home Buyers can qualify for FHA Loans two years from the Chapter 7 bankruptcy discharge date with re-established credit
  • Home Buyers can qualify for VA Loans two years after Chapter 7 Bankruptcy discharged date
  • Conventional Loans require a four year waiting period 

Waiting Period Mortgage Guidelines After Chapter 7 Bankruptcy

As mentioned earlier, there are waiting period Mortgage Guidelines After Chapter 7 Bankruptcy to qualify for government and conventional loans:

  • 2 year waiting period to qualify for FHA Loans and VA Home Loans
  • 4 year waiting period to qualify for conforming loans
  • Most lenders do not want late payments after bankruptcy and/or foreclosure

The Gustan Cho Team at USA Mortgage has no overlays on Mortgage Guidelines After Chapter 7 Bankruptcy. We are direct lenders with no overlays on government and conventional loans. Home Buyers who need to qualify for mortgage with direct lender with no mortgage lender overlays, please contact us at 262-716-8151 or email us at gcho@usa-mortgage.com.

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