May 10, 2011
In our last blog post we explored the FHA rules governing Chapter 7 bankruptcy and FHA mortgage loan applications. Having a Chapter 7 bankruptcy on your credit record does not automatically disqualify you from an FHA mortgage, but what about those who have Chapter 13 bankruptcy proceedings on their credit history?
There are many similarities in the FHA rules for Chapter 13 bankruptcy and Chapter 7. The first is that having a Chapter 13 does not automatically mean a borrower will be rejected for the new FHA mortgage loan.
Like Chapter 7 rules, the FHA requirements for Chapter 13, a record of on-time payments and improved credit habits is required. But unlike the FHA rules for Chapter 7, borrowers who filed Chapter 13 bankruptcy in the past have additional rules that must be followed for an FHA mortgage loan to be approved.
FHA rules state, “…a Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed”. The rules also require the payment record under Chapter 13 to be “satisfactory”, meaning all payments have been made on time.
Chapter 13 bankruptcies have additional constraints on the borrower, since the payment system is set up and ordered by a bankruptcy court. This means that when a borrower applies for an FHA mortgage, he or she may be required to request permission from the court to commit to a new mortgage. Such permission may be required in writing before the FHA will approve the loan.
Chapter 13 bankruptcy remains on a credit record much longer than the time it takes to pay off the debt as ordered by the court, so borrowers should know they may be required to furnish proof of successful discharge of the court’s requirements if the payment plan has been completed at the time of the loan application.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: