Veterans, military members and their families can face unique financial hardships given their service and sacrifice to our country. In some cases, its best for the individual to seek shelter through either a Chapter 7 or a Chapter 13 Bankruptcy.
Chapter 7 bankruptcy is also known as “liquidation,” because instead of instituting a repayment plan, a debtor’s assets are sold to pay back creditors. Click here to learn more about Chapter 7 BK’s.
Compared to a Chapter 13 Bankruptcy, the time required to complete a chapter 7 is generally much shorter but the effects on your credit are often times more devastating to your ability to get approved for a VA loan. In the mortgage lending world, we use a term called “seasoning period” and that period begins from the time the Bankruptcy is actually completed. For VA loans, following a Chapter 7 you will have to wait 2 years from the date when the Chapter 7 Bankruptcy actually ends.
Compared to a conventional loan, a 2 year waiting period is not that bad. This gives you time to re-establish your credit and to ensure you are in a much better financial situation before taking on new mortgage debt.
The other common bankruptcy type is known as Chapter 13 bankruptcy. Chapter 13 bankruptcy combines your debts with the help of a judge and establishes a repayment schedule based on what you owe and what you can afford to pay.
Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy lasts for the length of the court-ordered repayment program. These terms can last anywhere between 12 months an up to 5 years. Because the actual bankruptcy does not end until you have completed your payment plan. In terms of your mortgage, lenders will often look at a Chapter 13 bankruptcy more favorably than a Chapter 7 because you are actually repaying your obligations instead of wiping them away.
Qualified Veterans may be able to get a VA loan just 1 year removed from filing a Chapter 13 bankruptcy. It’s important to note here that the Bankruptcy seasoning period on a Chapter 13 is 1 year from the date that the Bankruptcy has been filed, not completed, however the consumer who has filed Chapter 13 will likely need to seek permission from their bankruptcy trustee in order to secure a new mortgage loan.
In order to qualify, lenders are going to want to ensure that you have made all of your payments on time while in the bankruptcy before issuing you a new mortgage loan.
For more information please contact one of our VA Loan Experts by calling us at: 888-826-4856
Perennial Funding LLC, 161 Washington St. Suite 950, Conshohocken, PA 19428
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