Getting a VA Loan with a Bankruptcy

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Although a previous bankruptcy may stand in the way of your approval for some types of mortgage loans, you may still qualify for a VA loan. VA loans are government-backed mortgages offered to individuals who have served in the U.S. military. The eligibility requirements for VA loans are less stringent than with most other types of mortgages.

How Bankruptcy Hurts You

Bankruptcy is a method by which an individual can obtain government help for dealing with debts he cannot manage on his own. Regardless of the circumstances surrounding the bankruptcy, the very fact that a consumer needed to file signifies poor debt management skills; which make him a higher default risk on any type of loan. In addition, individuals who have filed for bankruptcy in the past are at a greater risk of filing for bankruptcy again in the future.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is available only to individuals whose income is equal to or below the median income for their state of residence. Through a Chapter 7 bankruptcy, a debtor’s assets are seized and sold by the bankruptcy court. The funds are then distributed to his creditors. In Chapter 7 bankruptcies, its common for some creditors never to receive payment. Thus, a Chapter 7 bankruptcy is the worst type of bankruptcy to carry on your credit history. Once you file, a Chapter 7 bankruptcy will appear on your credit report for 7 years.

You can still qualify for a VA loan if you filed for Chapter 7 bankruptcy in the past as long as a minimum of 2 years have passed between the date the bankruptcy was discharged by the court and the date you apply for your VA loan. Your lender will also request a written explanation of why you filed for bankruptcy.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is a court-mandated debt restructuring plan. Through a Chapter 13 bankruptcy, an individual must repay as many of his creditors as possible over the course of 3 to 5 years. Monthly payments must be submitted to the bankruptcy trustee.

You can apply for a VA loan if you are currently making payments on a Chapter 13 bankruptcy repayment plan. You must provide proof to your lender that you have made timely payments to the bankruptcy trustee for a minimum of 1 year before your lender will approve your mortgage application. The bankruptcy trustee must also submit a statement of approval granting you the court’s permission to acquire new debt.

Additional Requirements

Although you can qualify for a VA loan with a bankruptcy on your record, you must meet additional qualifications as well. When reviewing your credit report, your lender will check your repayment history since your bankruptcies were terminated to ensure that you have made payments to each of your creditors on time and have made an effort to re-establish good credit. An isolated late payment here and there won’t stand in the way of approval, but if you continually make payments late and have defaulted on additional debts, you may be considered too high risk for a VA loan.