Bankruptcy Mortgage Relief

Currently, bankruptcy offers very limited protection to a homeowner who is upside down with his or her payments. The borrower can file a Chapter 7 which, depending on the state bankruptcy law, will most likely require him or her to surrender the property to the bankruptcy court, or file a Chapter 13 debt repayment plan to spread out prior delinquent payments over a number of months or years in the future. However, as of now, no bankruptcy proceeding can modify the terms of an existing home loan on a principal residence.

How Long Before You Can Buy Another Home After Bankruptcy? 

The current guidelines from Fannie Mae & Freddie Mac state the waiting period for a Chapter 7 Bankruptcy is 4 years from either the dismissal or discharge date. The exception for extenuating circumstances is 2 years.

A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period for a Chapter 13 bankruptcy is:

• 2 years from the discharge date, or
• 4 years from the dismissal date.

There are no exceptions for extenuating circumstances.

In the case of multiple bankruptcies, the current guidelines state that the waiting period is 5 years from the most recent discharge or dismissal date. The exception for extenuating circumstances is 3 years from the most recent discharge or dismissal date.

WORD OF CAUTION:  If you are facing a foreclosure, short sale or bankruptcy due to circumstances of losing a job, a medical crisis, the sub prime mortgage crisis fallout, it is suggested that you fully document your experience – starting now. It’s not recommended to wait until later, because, if you decide to apply for a loan in two years based on an extenuating circumstance claim, the details and emotional energy of what you are going through will be more difficult to document and prove down the road.

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