Buying a home is an important rite of passage for many, recently declaring bankruptcy does not automatically disqualify an individual from this opportunity. Chapter 7 and Chapter 13 are the most common types of bankruptcy filed. Both leave the debtor with the possibility of obtaining a mortgage after the bankruptcy is compete or while it is taking place, in the case of Chapter 13. Because the effects of bankruptcy are different in each case, a bankruptcy attorney should be consulted before taking any actions. The Federal Housing Administration (FHA), under HUD 4155.1 Chapter Four, Section C sets out the stipulations to purchasing a home after bankruptcy.
Under a Chapter 7 bankruptcy, the debtor’s assets are liquidated to assist in the repayment of loans. The FHA and Veteran’s Association allow a debtor to receive insured mortgages after at least two years have passed since the discharge of the bankruptcy. This two-year period does not open a debtor up to all lenders, some will require an additional amount of time. The discharge of the bankruptcy is completed after filing is complete, the assets are liquidated, and as a result the debtor is relieved of all debt. During the time after discharge before applying for a FHA insured mortgage a debtor should try to establish or re-establish good credit or not incurred new credit obligations. As always, there are exceptions to the rule and each case is different. For these reasons, it is important to consult an experienced bankruptcy attorney to find out if any of the exception apply to your case.
The opportunities available under Chapter 13 bankruptcies are not that much different. Under Chapter 13 Bankruptcy however, a debtor is assigned a repayment plan and must be careful taking on additional debt. Chapter 13 bankruptcies are viewed more favorably by creditors because the debtor is attempting to repay part of the debt owed. For this reason, government, FHA, and VA loans are more lenient. A debtor typically must show they have made at least 12 consecutive on time payments and have permission from the court to increase their debt. This includes having good credit, satisfactory employment history, and other financial qualifications.
If recently discharged from debt under Chapter 7 or Chapter 13, or working on a Chapter 13 repayment and considering purchasing a home, it is important to talk to a knowledgeable attorney before making any decisions. It is also important to remember foreclosure and bankruptcy are much different actions. Foreclosure has substantially different requirements and repercussions. The complexity of bankruptcy and lasting effects mean it is crucial to speak with an experienced attorney before moving forward.