One of the most common questions people ask me when people are looking to file bankruptcy is how long will it be until they will be able to receive credit again after filing bankruptcy. Now new rules from the Department of Housing and Urban Development will allow borrowers to get a new FHA mortgage in just one year after you file bankruptcy.
Prior to this change, borrowers wanting to get an FHA mortgage had to wait at least three years to get a new mortgage after filing bankruptcy. This new change is excellent for my clients that have had to file bankruptcy to get a fresh start. It’s going to allow people to get back into home ownership in just one year after filing a bankruptcy or losing their home to foreclosure.
The simple fact is that most of my clients are filing bankruptcy for their first and last time. Most of my clients have had an once-in-a-lifetime economic catastrophe event that was largely beyond their control. The foreclosure and bankruptcy were isolated events and not a general reflection of their financial management. Most of my clients file bankruptcy because it is their only way to truly get a fresh start!
The new rule for getting an FHA loan after filing a bankruptcy in little as one year will simply require the borrower to show documentation that the delinquencies or default were the result of an “Economic Event” beyond their control. The borrower will also have to complete an approved counseling program and meet all of HUD’s other guidelines for a new loan.
An “Economic Event” is something beyond the borrower’s control that results in income loss, job loss, or both. By definition almost all of my bankruptcy clients have experienced an “Economic Event” hence the reason of them filing for bankruptcy. The “Economic Event” must have reduced the borrower’s household income by 20% or more for a six month period.
Also, borrowers who wish to obtain an FHA loan after a bankruptcy must be able to demonstrate that you have attempted to gain satisfactory credit after your bankruptcy. To show this you will have to show that all credit kept after your bankruptcy is current and not showing any late payments on your credit report for the last 12 months.
The 12 month waiting rule specifically applies from the date of discharge of your Chapter 7 bankruptcy. For example, if your Chapter 7 bankruptcy is discharged in September of 2013 then you could be eligible for a new FHA mortgage in September of 2014. For Chapter 13 bankruptcies, you are eligible as soon as your discharge is issued so long as you can show that all of your Chapter 13 bankruptcy payments were paid on time in the 12 months prior to your discharge and any credit you were paying directly is current with nothing showing late for the last 12 months.
The result from these changes is going to allow a lot of my clients to be able to move on with their life at an even faster pace after they file bankruptcy. None of my clients ever come to me because they want to file bankruptcy. They come to me because something in their life has happened and they are in need of professional help to give them a fresh start. Now with these new mortgage regulation changes my clients are going to be able to recover even quicker then ever before!
Peter Behrmann is a Livonia Bankruptcy Attorney. From my Livonia, Michigan location, I represent clients throughout Metro Detroit and beyond, including Garden City, Wayne, Westland, Redford, Dearborn, Taylor, Ann Arbor, Belleville, Northville, Novi, Farmington, Farmington Hills, Plymouth, Canton, and the Counties of Wayne, Oakland, Livingston, and Washtenaw. My practice is limited to helping consumers like you file Chapter 7 and Chapter 13 Bankruptcy.