Can A Debtor Buy a Home After Chapter 7 Bankruptcy?

Yes, a debtor is allowed to buy a home following a Chapter 7 (liquidation) bankruptcy.  Here is how that can happen.   [Can A Debtor Buy A Home While In An Active Chapter 13?  Click here.]  [To see a helpful lending matrix, click here.]

How To Qualify To Buy a Home After Chapter 7 Bankruptcy

As a general rule, the debtor must have the Chapter 7 discharge behind them for at least two years.  Exceptions do exist (you might qualify earlier than two years). The FHA home-lending guidelines concerning loans to people that have filed Chapter 7 state:

A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations. The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs. An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner.

Additionally, the lender must document that the borrower’s current situation indicates that the events that led to the bankruptcy are not likely to recur.

In sum, a former debtor must have the Discharge Order entered at least two years in the past.  To be clear, it is not the date of filing that is two years ago; it is the date of the entry of the Discharge Order which normally occurs about 90 days after filing.   For a review of the Chapter 7 process, click here.   Also, the former debtor has to otherwise qualify for the loan, e.g., have a good credit history since the bankruptcy and earn enough income to make the proposed home payment.

Yes, Our Clients Have Purchased Homes After Chapter 7

Part of what lead to this article is that I randomly ran into a former Chapter 7 client that had received her discharge about 18 months ago.   She was in a great mood and engaged me in conversation, thanked us for helping her and her husband through the experience of filing.    She told me that they were prequalified to buy a house once the two year period from the entry of the Discharge Order passes.  She said that her credit score had returned to the 680 range.   It was, obviously, great news.

Of course, not everyone qualifies for a home immediately following the passing of the two year period.  Nor does everyone’s credit score move back up to 680 in 18 months.  However, obviously, it can happen.   A former debtor needs to make sure after filing that they take care of their credit report, collect any needed down payment, and be gainfully employed to show they are worthy of being trusted to make the proposed house payment.

Free Initial Consultation

If you are holding off filing bankruptcy because you are concerned about buying a home in the future, don’t be.  We offer a free initial consultation so that you can determine if bankruptcy makes sense or if you have other nonbankruptcy options to deal with your debt.    If we can help, you know how to find us.