Does Bankruptcy Affect Mortgage Lending?

January 8, 2019

Most homeowners deciding to file Chapter 13 or Chapter 7 bankruptcy wonder how this will affect their mortgage. It is important to understand how filing bankruptcy can affect your existing mortgage or your ability to obtain home financing in the future. Most people decide to go for bank statement loans to counter the effects of bankruptcy on mortgage payments.

What’s the difference between Chapter 7 and Chapter 13?

Chapter 7 bankruptcy refers to total bankruptcy. It involves wiping out all (or some) of your debts. Additionally, it may involve selling or liquidating some of your property so that you can pay off your debt.

On the other hand, Chapter 13 bankruptcy involves settling for a repayment plan. It is less of a total wipeout. Chapter 13 bankruptcy details on how you will pay your debt. Some of your creditors will be paid in full while others partially and others not at all.


How filing bankruptcy can affect your existing or future mortgages


How does Chapter 7 bankruptcy affect my existing mortgage?

With Chapter 7 bankruptcy, your property will either be deemed nonexempt or exempt. Nonexempt will mean that you will have to pay for the property in cash or surrender it. Exempt will require you to keep the property throughout the bankruptcy process. However, there are some exceptions where people are allowed to keep their property in nonexempt scenarios.

How long to get a new mortgage after filing Chapter 7 bankruptcy?

Most mortgage lenders will not consider your application for a loan until two years are over. However, reputable lenders, such as, offer non QM loans to help those who have filed Chapter 7 bankruptcy still own a home. Non qualified mortgage loans come in handy when you have found your dream home and you have not solved your credit issues yet.

How does Chapter 13 bankruptcy affect my existing mortgage?

Chapter 13 bankruptcy will bar your creditors from collecting money from you. Instead, you will keep your property but work on how you will repay them. You will be required to come up with a repayment plan. Foreclosure proceedings will be terminated and repossession of your home halted.

How long should I wait before becoming eligible for mortgage after filing Chapter 13 bankruptcy?

Most lenders will not finance you until at least one year has transpired after you file your Chapter 13 bankruptcy. However, some people will be exempted in such instances such as veterans. However, at HomeX, you can be eligible for non qualified mortgage loans, these should help you land your dream home even before becoming eligible for a mortgage loan. Non QM loans are structured in such a way that anybody can benefit from them.

Going for bankruptcy can be a huge decision when it comes to your current and future financing of your home. Therefore, before you decide to go file for bankruptcy or stop making mortgage payments, ensure you consult your financial advisor.