Can A Debtor Buy a Home While In Chapter 13 Bankruptcy?

Can A Debtor Buy a Home While In Chapter 13 Bankruptcy?

Yes, a debtor is allowed to buy a home even when in an active Chapter 13 (reorganization) bankruptcy.  Here is how that can happen.   [Can A Debtor Buy A Home After Chapter 7 Bankruptcy?  Click here.]  [To see a helpful lending matrix, click here.]

How Can Debtor Get Qualified To Buy a Home?

Bankruptcy Debtor Must Be Qualified By The Lender

First, a debtor must actually speak to a prospective lender and get qualified for the desired home loan.  Yes, there are loans available for people in an active Chapter 13.  However, most loans require that you have been in the 13 case for at least one year AND you have made all payments on time to the Chapter 13 Trustee.   FHA loans fall into this category.  FHA home lending guidelines concerning home loans in Chapter 13 state the following:

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 and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction.

Bankruptcy Debtor’s Request Must Be Approved By The Court

Next, as noted in the guidelines above, the debtor must obtain permission from the bankruptcy court to incur the debt to buy the home.   Normally, approval to incur debt is sought by filing a motion with the court that supports the request.  A hearing on the motion might not be scheduled for up to 45 days.  Therefore, a debtor should not wait until the last minute to obtain approval.

In order to obtain approval, the motion requesting approval has to explain/provide information on the following:

  • The terms of the proposed home purchase including:
    • purchase price
    • amount of the down payment
    • source of the down payment
    • monthly PITI house payment
  • Proof of your current income (provided by last three months pay advices/stubs, etc)
  • Your resulting budget if the home loan is approved
  • The impact on the current creditors in your Chapter 13 case if the loan is approved
    • Will they receive less/more/same money?

As a general rule, if there is no harm to the creditors, the court will approve the request to incur debt to buy a home.   This scenario normally occurs when the house payment is close to the current rent payment, i,e., housing costs are about the same and there is not harm to creditors.   If, on the other hand, a debtor wants to incur debt where the house payment would be $2,500 and the current rent is $1,250, the debtor can expect an uphill battle for the court’s approval unless there are some other helpful circumstances.

How Long Does Court Loan Approval Take?

A debtor should let their attorney know immediately that they have qualified for a home loan and want to seek approval to buy a home.   A debtor can expect that once they have ALL the necessary information to their attorney to analyze, a motion can be normally filed within a week or two.   The hearing on the motion might take as much as 45 plus days.  Therefore, again, do not delay.

Yes, We Do Know A Lot About Bankruptcy

If we can help you with this or any other bankruptcy issue, please contact us.  You know where to find us.

 

Comments

  1. Eloy sauceda says:

    Currently in a house in bankruptcy want to sell and get new home is this possible

    • It all depends if you are in a 7 or 13 (or 11 or 12). First, ask your attorney how the process works in your neck of the woods / jurisdiction. But, as a general rule, you might be able to file a motion to sell your current house (assuming that is what you want to do) and buy another. To buy another, the typical process is outlined above. To sell your current house, you’ll likely need to file a motion to do that as well. Again, run this by your attorney. My information is intended to be general and is not legal advice. It gives you just a place to start.

  2. Derick Johnson says:

    I’m in a chapter 13 bankruptcy and want to purchase the home I’m currently renting. What steps should I take to get started.

    • Check with your attorney to find out the local process to get approved for a home loan. Also, find an experienced lender/mortgage broker that has dealt with this situation or is smart enough to figure it out. 🙂 Good luck!

      • W Addison says:

        Thank you! This is also my current situation. I want to purchase the home that I’m currently renting also.

  3. Lisa Rosales says:

    I’m in chapter 13 but mainly had only my house and a few small bills. I filed 2011 and sold my house Dec 30,2015 and made a profit. But now getting married and we want to use a VA loan. Will I be able to be on the loan with my bankruptcy?

  4. question, we are selling a house and we have a buyer that has filled bankruptcy (not sure when) and he has filed a motion to incur debt to finance the purchase of our home, the problem is we have been extending the closing date to accommodate the court date, we are unsure if we should grant the extension to close the loan until the hearing date or just deny it and re list our home. We are just wondering what are the chances the judge denies his request (granted we know nothing about the case) thanks

    • This is not a simple question. There are many factors. Please free to email me directly for a consult to discuss the details. However, hopefully, debtors counsel is experienced and can give you good input on the likelihood of the judge entering the proposed order. I’d check that before I bailed on a possible sale. Please free to email me if you want a consult and deeper analysis.

  5. stacie cole says:

    I have been in my chapter 13 for almost 2 years and will like to purchase a home what steps do I take

  6. i’m 13 months into a chapter 13 bankruptcy and I want to buy a home. I applied with quicken loans, my credit score took a 4 point loss because of it and then the guy says there is NO way I can buy a home while in chapt 13 and that he’s an expert. this is not what I was told. help!

    • Talk with different mortgage lenders. I have had several clients get home loans while in active Chapter 13s. Maybe the lending rules have changed recently. Maybe. But, I “guarantee” I have had 13 clients obtain new home loan mortgages within the last few years. 🙂 Please feel to report back on the results of your search. 🙂

    • Quicken Home Loans is by far not the expert…. they are nothing more than application takers and they also have overlays that are on top of what FHA allows. Stick with a local mortgage banker/broker that is direct. I would be happy to work with you to maximize your credit scores and get you approved if you have not already purchased.

  7. Liz Rangel says:

    Does the court re-evaluate what income? Is there a chance that our Chapter 13 payment will increase after submitting a request for approval?

  8. Tabitha says:

    I’m in an active chapter 13. I been in it for 4 years. I recently got approved for a home loan. I know I have to get permission from the trustee but will buying a home make my monthly bankruptcy fees go up?

    • Well, not necessarily. I suppose you might have some extra attorney fees for any extra attorney time to get formal court approval. But I cannot see why your bankruptcy fees must go up just because you get a home loan. Ask your chapter 13 attorney. They should be able to tell you after a little bit of review. Congrats on the home approval. 🙂

      • Can I ask where you got a approval I myself am in chapter 13 and surprised that homeownership is possible ..

        • Hi Jerry: I don’t know of the name of the particular lenders. I think your best bet might be to see what Google has to offer and/or call a few mortgage brokers because they often have access to multiple potential lenders. The brokers want to make living. 😉 So, one of them will be able to find you a lender. 🙂

    • Hi Tabitha , we are currently in a chapter 13 as well , and thinking of buying a home , who did you get your loan through?

    • what bank did you use for the loan i am interested.

    • Auraica Brown says:

      Which lender approved you for your home loan?

  9. I file chapter 13 in 2014. I got approved for mortgage found house etc. I didn’t know I needed court approval until the underwriters told me. The under writer also told me I needed l proof I pay my trustee. I gave them
    The proof but I have always paid my trustee at different times oh the month, I was not aware that I had a due date of the first of the month. So I’ve never paid on the first always paid before the months end. Would that be a problem?

    • Well, the answer is simply that it is not a problem if your prospective lender does not think it is a problem. You should check and see how the trustee reports your payment history. IF they have you current fo reach, then i suspect the lender will take that as accurate. Good luck!

  10. I am 12 months into a Chapter 13 have never missed or been late on a payment and would like to buy the house I am currently renting .My rent is $1200 now . my home loan monthly payment will be around $ 900. would that change my Trustee payments

    • Hi Yvette: Great question. 1. You need to be approved to incur the new debt. 2. You will likely be approved if the new debt means you can still make the plan payment. 3. Your plan payment only goes up if you can make an increased plan payment. Talk to your attorney.

  11. I am in the same position as everyone else it seems…I am in a Chapter 13 Bankruptcy and want to purchase a home. My attorney has told me that I can get court approval if I get approved to purchase a home. My payments are payroll deducted so I know that I have never missed a payment. Can anyone suggest a mortgage lender that will work with my situation? I have good income but my FICO score is low. My mother is willing to help me get an FHA loan but she is retired and on a fixed income. Could I be listed as a co-borrower so that my income is included if i’m in the Chapter 13 plan? Or do I stand a better chance of trying to get a loan on my own. If so, which mortgage lender will seriously work with me?

  12. I’m in a chapter 13 as well. My attorney knows that I’ve been approved for a home loan and we’re waiting for the approval letter. Can still I close on my home anyway if the court doesn’t approve the loan. What happens if I do that?

    • I suspect that the title / escrow company won’t close the transaction without a court order. I suppose you could try, but understand that I suspect that that would be technically unauthorized under Chapter 13. If you close and get the Order after the fact, it is likely that no one would object to the transaction. You should talk with your attorney about the best options.

  13. Paul evatt says:

    Can anyone tell me who to apply with for loan while in a chp 13 bankruptcy?

    • I don’t have the name of a particular lender. If someone has one, please feel free to post for all to see. But my guess is that they should not be har to find. I have had many clients over the years get home loans while in a Chapter 13 case.

  14. Crystal brison says:

    I filed chapter 7 last month. Is it possible that a judge can approve me to get an home loan??

  15. I am in a chapter 13 its been 2 years just got motion granted by judge to incur new debt now I wanna know how long it will take for the judge to sign the order ?

    • If you “just got (the) motion (to incur debt) granted”, then that means the Judge has signed the Order. So, I am not exactly sure what you are asking. Please advise.

  16. DOnna Pollitt says:

    Do I have to go through the same attorney to file a motion that did our bankruptcy? Our moved out of state and transfered us to someone and we don’t care for them.

  17. Jennifer M says:

    I’m 14 months in on a chapter 13 bankruptcy case and just received a letter from my landlord that she will be terminating the lease in 30 days and selling the home . I was paying her $2000 a month and I need a place to live in a hurry. My dad consigned for me a home and my payment will be $1275 a month. Will it be hard to get this approved? It will also free up about $750 a month of my disposable income , will that need to go to my chapter 13 payment if I’m already at 100%.

    • Your scenario (more money available after the purchase than before) sounds like an “easy” approval as long as you follow the local procedure for approval. 🙂 Good luck! [and contact your attorney ASAP to get it started because it could take more than 30 days!]

      • Terrica L Hendricks says:

        Why isn’t there a listing of the lenders that you can go to get approval from under bankruptcy

        • That is a good question. In short, there is no practical way for me to provide a list of lenders for all 50 states and that is updated in a timely fashion to keep current. Also, most people can find potential lenders in their area by either a Google search for “obtain home loan in Chapter 13 bankruptcy” etc. Another option is for a potenmtial borrower to just make multiple calls to local mortgage brokers and lenders until you find one in your area. I hope that makes sense. 🙂

  18. We have a lender who can approve a loan while we are in active chapter 13. We have never missed a payment for 2.5 years. However, we are trying to get approval for paying $700 more than we pay in rent. Did this seem unlikely that we will get the trustee’s approval?

    • Approval seems unlikely unless you have other facts in support. For example, if you can still pay all creditors in full with a lesser plan payment, it might get approved. If you absolutely need a larger place (assuming its larger), then it might be approved. Taking money from creditors so you can have a nicer place or a better investment won’t be enough to get approval,in my experience.

  19. I’m in a chapter 13 I been their for 16 months with good on time payment I’m trying to get a home . Got a loan officer too ok me for the loan but the courts trustees have a with me trying too incur more debt my rent is 750 a month and the mortgage payment is 1360 a month what are my chances on getting approved ..

    • I am not a lender and I cannot tell you if/how you might qualify for a loan. However, if you do qualify (get preapproved) then you’ll need to ask your attorney about the process for approval. As long as your request is reasonable under your circumstances, then the court will, generally, approve such a request. Please contact your attorney for the details for your local court. I hope this helps!

  20. I am in a Chapter 13 Bankruptcy can I build a house

    • Sure, but if you are going to incur debt and/or have money diverted from other expenses to building the home then you might need a plan modification and/or court approval to incur debt. You need to check with your attorney on local practice on the process to seek approval for such a scenario. Good luck!

  21. Rodney Morrell says:

    My landlord has offered me to do a land contract on our rental unit. The monthly payments will remain pretty close to our current rent. I am 13 months into my 36 month plan. Would this be possible to get approved?

    • Yes, that sounds like the kind of scenario the court would approve since it does not negatively impact your creditors. You need to check with your attorney on local practice on the process to seek approval for such a transaction. Good luck!

  22. My chapter 13 was dismissed by a judge. I am currenty selling my home in a short sale. Do I have to wait 2-3 years before purchasing or building a house. I have extenuating circumstances due to the loss of my husband.

    • Well, there in nothing in the Bankruptcy Code that says you cannot get a home loan after Chapter 13 dismissal. Your question should be directed towards a potential lender. They are the ones that will have the qualification to obtain a new loan including the impact of the prior dismissed Chapter 13.

  23. Pat Johnson says:

    What happens if: we’re already preapproved; in underwriting for the 2nd time, and they just informed us of the process of obtaining a letter? Our closing is approximately 45 days out.

    • As a general rule, a potential borrower in a Chapter 13 needs to check with their attorney as early in the process as possible to make sure they understand the timeline and process. Normally, once a debtor has loan pre-approval, a motion to approve purchasing a home would take about 30 days. If you don’t have that much time, approval might be obtained more quickly. However, as you might expect, they attorney fees might be more to jump through the extra hoops to get it heard sooner than normal. I hope this helps!

  24. Hey Mr. Russell,
    My wife and I are 36 months into our 100% Ch 13 with no late payments. We’ve been renting for 5 yrs and are now looking to acquire financing for a home. Once, and if approved, our anticipated mortgage payment would be around $6000/mo, whereas our current rent payment is $3500/mo. We can show that our income will easily cover the new mortgage payments without affecting any of our creditors or our payments into the plan. You mentioned “other helpful circumstances” in your summary above. What other circumstances might help our case as we seek trustee approval for this mortgage? Thank you

    • Well, the general rule is that if you are paying all creditors in full then you do not have to contribute all disposable income to the plan. Your mortgage payment can be whatever you want, in theory, in that case. So, your request may be approved. Yours in an unusual circumstance and would depend on the judge and trustee. It seems to me the closer you are to completing the 13, the more likely you are to get approval. But check with your attorney to see how such scenarios are viewed by your court and trustee.

    • TRIP- Be sure to speak with a lender prior to starting the approval with the courts.

      The standard loan program that allows a mortgage while in chapter 13 is only offered from FHA and they have county loan limits for each area. You can find the specific loan amounts here. (Clark County is currently $408,250) https://entp.hud.gov/idapp/html/hicostlook.cfm

  25. Angelia Johnson says:

    4 years ago following divorce, I filled a chapter 13 it was dismissed for a late payment I have been at a standstill ever since.

    Again I am considering bankruptcy the year… VERY NERVOUS. Preferably I would like to purchase a modest home where my payment is less than or equal to my rent have a 15 year mortgage.

    Questions:
    1. Is Chapter 13 the only means for home purchase DURING bankruptcy?
    2. Does the home purchase have to be in the state where the bankruptcy is filed?

    • Great questions. I suppose you could get approval to buy a home while in a Chapter 7. However, a Chapter 7 is usually only about 3 months in duration. So, one should probably just wait until the 7 is complete to avoid the costs of getting approval in the 3 month window. Second, whether in a 7 or 13, the home you buy does not have to be in the same state. However, assuming you are in a 13, moving out of state likely impacts your budget (buying a home or not). So, you would just have to do the usual budget review as is required in 13 with any change in employer or income/expense. In general the Court will approve you to buy a home as long as creditors are not unreasonably impacted. I hope this perspective helps.

  26. Can I build a new house while on bankruptcy.

    • There is no rule against it. But, you have to jump through some hoops for the approval process. (Note: I presume you are talking about while in 13. Most 7’s end well before you could start and complete building a home.)

  27. So We filed for our motion to sell real property sep 6, and so far we received a disapproval from trustee on motion to modify but approval of motion to sell. We also got an approval from house lender to go ahead and sell. How long does it usually take in California to get the motion signed by the judge?

    • I do not practice law in CA and cannot tell you for sure. However, it should take “about a month” to get any request approved/reviewed. But, please remember that it normally takes a few days/weeks to gather info and prepare the necessary docs to be filed with the court to make the formal request. So, contact your attorney as soon as you can in the process to get the necessary information. I hope that helps.

  28. Unknown mother says:

    Quick question? I am in a chapter 13 with two years to go. I want to build a house with my mother when I come out of bankrupcty but it says that i need verification of rent but the house that i am currently in I paid cash for it, but at first I couldn’t get because my credit score wasn’t high enough so my grandmother put it in her name and then 2 months later I received a nice settlement and was made by my grandmother to pay the house off which I did,but she didn’t think that I was financially responsible to put the house in my name so here we were 4 years later it’s still in her name which is ok.. Granny’s know best!

    • First, my apologies for the delay in getting back to you. Second, your question raises a bunch of questions – particularity about the transfers made and new assets received during your Chapter 13. Please contact your attorney to discuss those issues because they might well impact how/when/if you can get qualified for a new home loan.

  29. Some great questions here- I wanted to point out a few things that I personally run into with buyers in Chapter 13.

    #1. FHA is the standard means of lending for these types of loans and that comes with loan limits for each County- https://entp.hud.gov/idapp/html/hicostlook.cfm (I do have another lender I can broker to that allows one day out of BK and has some programs in chapter 13 but usually the increase in rates (around 7-9% vs. under 4% in FHA never make sense to a buyer)

    #2. Since this is FHA there are some restrictions on previous delinquency on any government debts- so if you had a FHA loan and it went to foreclosure or a short sale you may have an issue.

    #3. Conventional Lending- Not FHA- does not require mortgage insurance with 20% down the waiting period is:

    Chapter 13- 2 years from discharge date; 4 years from dismissal date (Previous home ownership needs to be verified on status if previous homeowner)

    Chapter 7- 4 years from discharge date or dismissal date

  30. I have a question we are in Chapter 13 with 11 months left and we are in the middle of buying a home …our lawyer says he filed for approval from the trustee a little over 2 weeks ago. I have looked on pacer.gov and I do not see where anything has been filed!!! We have a closing date of Dec 29 and I am starting to freak because of the limited amount of time. I have called my attorney and asked but he says he hasn’t heard any updates yet. Is there anything else I can do to help speed up the process?!

    • How do you have access to PACER? You might tell your attorney that you have looked on PACER and don’t see the motion filed. He may have the same question. I suppose you can possibly ask the trustee if they show it is filed. Another option might be just to call the clerk of the court / case administrator and see if they see such a motion has been filed. I’ll note that approval of something like that might only take 20-30 days. So, maybe the the attorney has it and plans to file it in the next few days. I hope this helps. 🙂

  31. Robert, 45 months into ch 13. I asked my lawyer if I could pay 10 days late as I shuffled some expenses around. She said paying 10 days late is fine. So that’s what I did for Oct, Nov, Dec. my payments are due the 20th of each month. So they posted as paid in the following month. So it looks like I didn’t make a payment for November on the ndc site. That’s part one. Part 2 is — what are late payments according to FHA? I hope I didn’t blow my chance of working with a bank this far in. I didn’t have to, but attorney said it was fine. Bummed out now. I suppose I will need to wait 12 more months now for a mortgage app through FHA or wouldn’t the three be considered late on those three?

    • Well, it’s normally true the that Chapter 13 trustee does not care if you are late but get caught up from time to time. A mortgage lender might care. You ask a great lending question on what happens if you have a late payment … how long do you have to wait. Frankly, I don’t know. Plus, that is a lender question and not really a legal question. So, I’d check around with various lenders and see what they tell you. If you are in SW WA or near, I have a person that does a great job. Otherwise, I’d make a many calls and get several options from brokers on when/how you might get a home loan under these circumstances.

  32. Latasha Fields says:

    I am looking to do a VA loan. I am the veteran however I have poor credit. Currently in a CH 13 but was advised with trustee permission I could get a mortgage. Been living in current property since July 2016 paying $1450 per month rent. Looking to purchase current home if possible. Can you help. I live in Northern KY.

    • Well, first you should check to see if you qualify for a VA loan subject to court approval. If only makes sense to get court approval IF you have a lender that is willing to lend. So, I’d look into the part first.

    • Not sure what score you have on your credit but most lenders have min. Score overlays. We try to get our clients score over 640 if at all possible as we can get better rates for them. There are usually a couple easy ways to improve your score for free (don’t call credit repair companies!!!). Also, one of the biggest things to know is one bank may not be able to help you as they have company overlays that say they can’t help someone with a recent BK even though VA allows it. You need to find a lender that can help now.

    • Great information Mr. Russell! I am sure many will find your answers extremely helpful. If you don’t mind, I add some additional comments. For those individuals or family interested in buying a home while in an active Chapter 13 is you must first be able to show that you have made at least 12-months of on time payments to the Court ordered Trustee.

      The key words being “on time”; meaning no payments have been more than 29 days late. Generally, speaking government loan programs such as FHA, VA and USDA are the easiest to qualify for as they allow financing during an active chapter 13 bankruptcy. However, the borrower should have at least a 580-credit score in order to take advantage of most of these programs. We as a lender may be able approve a home loan case by case down to 500 credit score.

      After reviewing the borrower’s loan application, income, and asset documents, the Loan Officer may be able issue a pre-approval and provide the borrower with a copy of the loan application and fee sheet. The borrower’s Attorney will then file a Motion to Incur Debt with the Court. The Court will either approve or deny the purchase of the home based on the parameters provided by the Loan Officer.

      With the help of experienced Attorney like Mr. Russell and a good Mortgage Loan Officer, the dream of owning a home is possible. With 30 years’ experience, I have helped hundreds of individuals and families become homeowners while in an active BK Chapter 13 over the years.

      NOTE: Once the Chapter 13 is Discharge, we do not require any waiting period like most lenders. Once your case has Discharged, you are good to start the process. Best wishes to you!

  33. Can you get approved for a loan if your in second year of chapter 13 and IRS debt is included in your chapter 13 plan ?

    • If you are asking if a lender will determine you are qualified given the tax debt, I don’t know. You’d have to ask the lender. If you are asking if the court might approve a loan even though you have tax debt, yes, the court could approve a request to incur a mortgage debt. It all depends, as in every case, on the impact of the proposed new loan on the plan and payments to creditors.

  34. I’m 44 months in to my Ch. 13 bankruptcy and live in Virginia. I’ve applied for an FHA loan 2 different with lenders and have met the same road block with both. Both lenders are asking for my trustee’s approval to approve my loan application but my attorney says the trustee must review a signed contract before they will authorize a home purchase. One would think any lender participating in the FHA process would know how Trustee approval is obtained but they apparently don’t. Any advice would be most helpful.

    • Maybe they don’t want to do the work on a loan ap0plication if you are not already approved for the potential loan… I can see why they might want that (to avoid a waste of time if you don’t qualify). But, I don’t believe you need court/trustee approval to APPLY for a loan. Obtaining the loan requires court approval. Having said that, they have the money you want. So, you might follow their rules (assuming that is their rule). So, you might explain/show this to your attorney and ask for the attorney to get a “comfort order” that says you are authorized to apply.

    • You could certainly get “approved pending court approval”. Trustees can make up any rules they like and they all seem to do things differently. In defense of your bank, it is hard to have every loan officer trained up on every aspect of mortgage (esp. dealing with BKs) The main risk for you is do you want to get an appraisal before having court approval? Our company would likely work with you to issue you a “credit approval” so you didn’t have to get an appraisal yet, with hopes that the trustee would approve that.

  35. Hello,

    I paid off my chapter 13 bankruptcy and now the underwriter wants a letter from the trustee saying I don’t need permission from the court to purchase a home. Do I need permission since I haven’t been discharged due to outstanding checks?

    • First, always ask your attorney for how the process works in your jurisdiction. I suppose since your case is not complete, then the terms of your plan and local rules control. I imagine your plan says you need approval to incur debt. I imagine the potential lender wants either your case completed (and no permission required) or permission from the trustee/court. I hope that helps.

  36. I filed chapter 13 in August of 2017, we currently rent a home and really want to purchase but when I spoke to my attorney he said No, your not allowed to incur any debt while in chapter 13.
    But everything I have read says you can but you need to get approval from court… we live in upstate NY
    What do we do?

    • Well, in this jurisdiction, a Chapter 13 debtor can be approved for a home loan while in 13 as long as it does not harm creditors to be paid in the Chapter 13. Your attorney’s advice might be based on local practice. It’s hard to say. I think it would be reasonable to double check what might be acceptable in your area or, at least, seek a detailed explanation why it allowed in other jurisdictions and not (if not) in your jurisdiction. Please feel free to report back on the results, if you have time. Good luck!

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