Uncategorized October 4, 2012

Back on the Path to Homeownership from Bankruptcy…

In the last few years, many people have gone through financial hardship and have had to make some tough choices.  Here is one lender's policies to give someone looking to get back on track to home ownership some guidelines to plan for.

Bankruptcy Policies




Bankruptcy (All Except Chapter 13)

Conventional:   4-year time period from either the discharge or dismissal date of the bankruptcy.


FHA / VA:  2-year time period from the discharge of the bankruptcy.  Borrower must have re-established good credit.

Chapter 13 Bankruptcy

Conventional: The time period for Chapter 13 bankruptcy actions is measured as follows:


• 2 years from the discharge date, or

• 4 years from the dismissal date.


FHA / VA:  Acceptable with 12 month acceptable payment history of the bankruptcy and permission from the court.  Credit must be re-established outside of the bankruptcy. 

Exceptions for Extenuating Circumstances (see definition below) All Bankruptcy Actions

Conventional: The 2-year time period will be measured from the bankruptcy discharge or dismissal date. No exceptions are permitted to the 2-year time period after a Chapter 13 discharge.


FHA / VA:  Less than 2 years but not less than 12 months may be considered with extenuating circumstances.

Multiple Bankruptcy Filings

Conventional:  5-year time period from most recent dismissal or discharge date required for borrowers with more than one bankruptcy filing within the past 7 years.


FHA / VA:  Same guidelines as Bankruptcy above.

Exceptions for Extenuating Circumstances (see definition below) Multiple Bankruptcy Filings

Conventional:  3-year time period from the most recent discharge or dismissal date.


Note: The most recent bankruptcy filing must have been the result of extenuating circumstances.


FHA / VA:  Same guidelines as Bankruptcy above.




Definition of Extenuating Circumstances: Extenuating circumstances are nonrecurring events that are beyond the borrower’s control, and result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. Documentation provided to support claims of extenuating circumstances should confirm the nature of the event that led to the bankruptcy or foreclosure-related action and illustrate that the borrower had no reasonable options other than to default on his or her financial obligations.



Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).

Let me know if you have any questions.