It's fairly common knowledge that bankruptcy can drop your credit score by hundreds of points and render you ineligible for a new mortgage for several years. You may have resigned yourself to renting for the foreseeable future. But you might not have to.

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The reason for your bankruptcy filing has a big influence on how much grief lenders will give you about your next home purchase or refinance. For example, FHA's guidelines normally require that you put at least two years' distance between your mortgage application and your bankruptcy discharge. You will also have to prove that you have established good repayment habits and demonstrate financial responsibility, preferably by saving some money.

But FHA allows some applicants to be approved as soon as 12 months after filing for bankruptcy! FHA's underwriting guidelines state that:

"An elapsed period of less than two years, but not less than 12 months may be acceptable for an FHA-insured mortgage, if the borrower
�� can show that the bankruptcy was caused by extenuating circumstancesbeyond his/her control, and
�� has since exhibited a documented ability to manage his/her financial affairs in a responsible manner.

In addition, a Chapter 13 bankruptcy is treated more leniently than most Chapter 7s, as you are making a commitment to repay some or all of your obligation. FHA says:

"A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that
�� one year of the payout period under the bankruptcy has elapsed, and
�� the borrower’s payment performance has been satisfactory and all required payments have been made on time.

The borrower must receive written permission from the court to enter into the mortgage transaction.

Note: The lender must document that the borrower’s current situation indicates that the events that led to the bankruptcy are not likely to recur."

However, don't expect any mercy if your difficulties were the result of laziness sending your payments or financial mismanagement. To catch a break from an FHA lender:

* Document the cause of your financial difficulty (a medical emergency? unemployment?).

* Prove that the problem has been solved (for example, your medical bills were discharged in the bankruptcy, your income is sufficient to cover your expenses, and you can show that you have paid your bills on time).

* Demonstrate that you have taken steps to prevent the same difficulty recurring (you have purchased medical insurance).

    And keep in mind that FHA has this to say about people who don't have a good excuse for their bad credit:

    "If a borrower’s credit history, despite adequate income to support obligations, reflects continuous low payments, judgments, and delinquent accounts, significant compensating actors will be necessary to approve the loan." Remember that FHA, like God, only helps those who help themselves.