Filing for Chapter 7 or Chapter 13 personal bankruptcy means a mark on your credit report for as long as 10 years. But contrary to the belief of many who fear filing for bankruptcy because of this fact, a record of bankruptcy on your credit report for up to 10 years doesn’t mean that you won’t be able to obtain a mortgage for 10 years. In fact, filing for bankruptcy doesn’t have to prohibit you obtaining a mortgage for very long at all.
Many think they already know the post-bankruptcy mortgage story, but they aren’t consulting the right sources. There were a lot of people who sought bankruptcy as a solution during the most recent recession (which officially ended in 2009). Those individuals may now be eligible to apply for a mortgage and have reasonably high hopes of being approved. The mandatory waiting periods for submitting a mortgage application (for a mortgage backed by Fannie Mae or Federal Housing Administration) is anywhere from two to four years right now.
Many mortgage officers are seeing individuals who are just coming back to the lenders looking for credit to purchase a home in the last year. They may have lost their home to foreclosure, needed to rent a home for a while in order to have time to rebuild their credit, and are now ready and able to get back in the home buying market. In 2007, we saw the number of personal bankruptcy filings start to climb. They peaked a few years later with 1.5 million filings in 2010 (according to the American Bankruptcy Institute). Since that time, the number of bankruptcies filed has been declining.
Waiting Periods for Obtaining a Post-Bankruptcy Mortgage:
- Chapter 7 liquidation bankruptcy: 4 years from the date of discharge
- Chapter 13 bankruptcy: 2 years (debts are partially repaid under the court-approved plan by this point)
Federal Housing Administration Loan
- Chapter 7 liquidation bankruptcy: 2 years from the date of discharge
- Chapter 13 bankruptcy: 1 years (with permission from the court and a record of on time payments to the reorganization plan)
In rare instances, there are even exceptions made for those who are able to show extenuating circumstances that caused their financial hardship leading to bankruptcy filing.
If you’d like to discuss the options and protection that filing for bankruptcy provides please get in touch with Southern California’s bankruptcy experts at Westgate Law.