Arkansas and other states are seeing that some persons who lost their homes and filed bankruptcies for debt relief during the recession are now back and applying for new mortgages. In fact, although a Chapter 7 bankruptcy can be reported for up to 10 years, a mortgage for a home purchase can be obtained sooner than that. It depends largely on how well the consumer has done in repairing his credit score.
Regarding mortgages backed by Fannie Mae or the FHA, the waiting period after a bankruptcy discharge is two to four years. The Fannie Mae rules require a four-year wait after a Chapter 7, and a two-year period after a Chapter 13. The FHA requires a two-year wait for Chapter 7 and a one-year period after a Chapter 13. The rules for getting a mortgage after only one year require that the person kept up Chapter 13 payments and has court permission.
There are even shorter waiting periods where there was an unexpected job loss, but that is reportedly difficult to obtain. Additionally, the downside to this process may see applicants being offered a loan with a somewhat less than competitive interest rate. That will depend on the success of the consumer's efforts to improve the credit score.
For some potential borrowers the task may be easier. Thus, if a married couple, for example, was able to keep the home during and after a Chapter 7, the couple may be able to refinance at this time if the payments remain current. Many Chapter 7 bankruptcies are filed by homeowners who are current on their mortgages but who need debt relief with respect to burdensome unsecured credit card and medical debt.
Those consumers may be able to convert to a lower-rate mortgage after completion of their bankruptcy. All in all, the foregoing considerations clarify for Arkansas residents that filing a bankruptcy does not prevent an individual or married couple from obtaining a new mortgage or a mortgage refinancing package. Assiduous post-bankruptcy efforts to improve one's credit score will shorten the waiting period.
Source: The New York Times, "Mortgages After Bankruptcy", Lisa Prevost, Oct. 30, 2014