A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from
obtaining an FHA-insured mortgage if at least two years have elapsed since
the date of the discharge of the bankruptcy. During this time, the borrower
â€¢ re-established good credit, or
â€¢ chosen not to incur new credit obligations.
An elapsed period of less than two years, but not less than 12 months, may be
acceptable for an FHA-insured mortgage, if the borrower
â€¢ can show that the bankruptcy was caused by extenuating circumstances
beyond his/her control, and
â€¢ has since exhibited a documented ability to manage his/her financial affairs
in a responsible manner.
A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an
FHA-insured mortgage, provided that the lender documents that
â€¢ one year of the pay-out period under the bankruptcy has elapsed
â€¢ the borrowerâ€™s payment performance has been satisfactory and all required
payments have been made on time, and
â€¢ the borrower has received written permission from bankruptcy court to enter
into the mortgage transaction.
TOTAL Scorecard Accept/Approve Recommendation
Lender documentation must show two years from the discharge date of a
Chapter 13 bankruptcy. If the Chapter 13 bankruptcy has not been discharged
for a minimum period of two years, the loan must be downgraded to a Refer
and evaluated by a Direct Endorsement (DE) underwriter.
Bankruptcy (Chapter 7 or Chapter 11)
A four-year waiting period is required, measured from the discharge or dismissal date of the
Exceptions for Extenuating Circumstances
A two-year waiting period is permitted if extenuating circumstances can be documented, and is
measured from the discharge or dismissal date of the bankruptcy action.
Bankruptcy (Chapter 13)
A distinction is made between Chapter 13 bankruptcies that were discharged and those that
were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as
â€¢ two years from the discharge date, or
â€¢ four years from the dismissal date.
The shorter waiting period based on the discharge date recognizes that borrowers have already
met a portion of the waiting period within the time needed for the successful completion of a
Chapter 13 plan and subsequent discharge.
Before anyone decides to declare bankruptcy it advisable to ask these very question from a tax attorney who under normal conditions need to be familiar with the case and would be capable and suggest bankruptcy only as the last resort.
Their role is to clarifying how bankruptcy can be adverse to an individuals' credit or personal finance and tax obligations and how it effects and applies to their specific case .
With FHA, you have to wait 2 years from the discharge date if it was a BK 7. An elapsed period of less than 2 years, but not less than 12 months may be acceptable for an FHA loan if you can show (to an underwriter's satisfaction) that the BK was caused by extenuating circumstances beyond your control.
If it was a BK 13, it does not have to be discharged, but you do have to show 12 consecutive payments that were made on time and you must have the BK trustee's approval.
If your credit score is 580+, you only have to put 3.5% down.
Cobalt Financial Corporation
(408) 615-8500 or Toll-free (866) 573-3331