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Chapter 7 Bankruptcy

A client asked me if their chapter 7 bankruptcy ,which was discharged 3 years ago next month, would prevent them from obtaining a loan to refinance. Their credit scores are low 600's. They have only one active credit card which appears on the credit report. Their existing 1st, 2nd, & 3rd were part of the bankruptcy, but were not re-affirmed, and they have continued making payments on all three. These, however, do not show up on the credit reports.

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  Answers  |  2

October 06, 2014

The waiting period for Chapter 7 bankruptcy is 4 years or 2 years with "extenuating circumstances". It is helpful and commendable that they have continued paying on their mortgages & keeping them current. The problem with the mortgages not showing on the credit report however, is that automated underwriting system will not pick them up for a loan decision (approval or referral). Often in these cases, the mortgages cannot simply be "added" to the credit report because they were not re-affirmed. Therefore the only way to correct the situation is with a manual underwrite with supporting documentation showing the consistent payments of these mortgages. Not all lenders will do a manual underwrite and some only do it with FHA (though with a credit score <620, I would think FHA is the way to go on this). Also with only 1 credit card on the credit report, these clients may not have enough active tradelines to qualify.

The answer is that it can be done, but the first thing you need to find out is whether they fall into the 4 year or the 2 year bankruptcy category.

$commenter.renderDisplayableName() | 09.23.20 @ 15:55


June 20, 2019

They may be able to do a FHA refinance IF they have equity, income to qualify and the property meets health and safety codes. I suggest they do FHA and then wait 13 months until they meet the 4 year mark and pay everyone preferably to a conventional refinance after the 4 years from discharge is over.

$commenter.renderDisplayableName() | 09.23.20 @ 15:55