Can I Buy a House After Filing for Bankruptcy?

One of the many myths out there about bankruptcy is that someone who files bankruptcy will never be able to buy a house. This is not true!

The current mortgage underwriting rules (which set forth the criteria for allowing a lender to approve a mortgage loan) allow a person to qualify for a mortgage two years after they file a Chapter 7 bankruptcy or after they’ve made twelve payments to the trustee in a Chapter 13 bankruptcy. That’s right, while you are in an active Chapter 13 case, you can purchase a house. There are hoops you must jump through, but it is possible! Be sure to review the specific FHA requirements.

A few things that you will need to focus on include:

• Your credit score (need to get that up to about 650)
• Start putting aside for a down payment (can be as low as 3.5%)
• If you are in a Chapter 13, you must ensure that you make on-time payments to the Chapter 13 Trustee

Over the last few years I’ve had several of my Chapter 13 clients purchase homes. Of course, being in a Chapter 13 bankruptcy means that there is a process that someone has to go through to qualify for a mortgage loan. In Kansas, the court requires that someone in a Chapter 13 must file a motion to borrow or incur debt if they want to finance a house or car. When this motion is filed, you also have to provide the Court and Trustee with information about your income and expenses, which will demonstrate that you can afford the new debt.

One thing to be on the lookout for: if you’ve had the good fortune for an increase in income since your case was filed or your new mortgage will actually reduce your monthly expenses, you can expect the trustee to require you to modify your plan to increase your Chapter 13 payment. That big raise you got that you thought meant more spending cash in your bank account is going to have to go to your creditors. Your attorney should be on the lookout for this issue as well. Before making any decisions about buying a house while in a Chapter 13, you should speak to your attorney to walk you through any possible concerns.

Chapter 13 bankruptcy is complex with many moving parts. If you’re thinking about filing bankruptcy, you should talk with an experienced lawyer who can take you through the minefield of the process safely.