HOW CAN YOU GET QUALIFIED TO BUY A HOME WHILE YOU ARE IN CHAPTER 13 BANKRUPTCY ?

Yes, you can buy a home while you are in Chapter 13 bankruptcy.  Here is how that can happen. First, a debtor must actually speak to a prospective lender and get qualified for the desired home loan.  The lender must qualify or approve the bankruptcy debtor.

Again, it is possible to buy a home while you are in Chapter 13 Bankruptcy.  However, most loans require that you have been in the 13 case for at least one year.  You must have been able to consecutively complete your bankruptcy plan payments on time.  FHA loans fall into this category.  FHA home lending guidelines concerning home loans in Chapter 13 state the following:

A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA mortgage.  Provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction.

 

BANKRUPTCY DEBTOR’S REQUEST MUST BE APPROVED BY THE COURT

Next, as noted in the guidelines above, the debtor must obtain permission from the bankruptcy court to incur the debt to buy the home.  Normally, approval to incur debt is sought by filing a motion with the court that supports the request.  A hearing on the motion might not be scheduled for up to 45 days.  Therefore, a debtor should not wait until the last minute to obtain approval.

In order to obtain approval, the motion requesting approval has to explain/provide information on the following:

  • The terms of the proposed home purchase including:
    • purchase price
    • amount of the down payment
    • source of the down payment
    • monthly PITI house payment
  • Proof of your current income (provided by last three months pay advices/stubs, etc)
  • Your resulting budget if the home loan is approved
  • The impact on the current creditors in your Chapter 13 case if the loan is approved
    • Will they receive less/more/same money?

As a general rule, if there is no harm to the creditors, the court will approve the request to incur debt to buy a home.   This scenario normally occurs when the house payment is close to the current rent payment, i,e., housing costs are about the same and there is not harm to creditors.   If, on the other hand, a debtor wants to incur debt where the house payment would be $2,500 and the current rent is $1,250, the debtor can expect an uphill battle for the court’s approval unless there are some other helpful circumstances.

HOW LONG DOES COURT LOAN APPROVAL TAKE?

A debtor should let their attorney know immediately that they have qualified for a home loan. Your next step will be to seek approval to buy a home while you are in Chapter 13 bankruptcy.   A debtor can expect that once they have ALL the necessary information to their attorney to analyze, a motion can be normally filed within a week or two.   The hearing on the motion might take as much as 45 plus days.  Therefore, again, do not delay.

[To see a helpful lending matrix, click here.]

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