MCP Help Blog

Many thousands of people get mortgages after  completing a bankruptcy. How long you have to wait depends on a few things.

What was your credit like before filing bankruptcy? You’d be amazed–usually it’s not the bankruptcy filing per se that destroys your credit score but the late or missing payments, judgments, and collection accounts leading up to the filing. If you pay your bills on time until the day you file (I know, easier said than done!), your bankruptcy is much less damaging.

What kind of filing was it? Sometimes 13 is a luckier number. Chapter 13 bankruptcies are often treated differently than Chapter 7 filings–Chapter 13 filers repay some or all of their balances while Chapter 7 filers may pay nothing. Often underwriting guidelines let Chapter 13 filers get mortgages a year or two sooner than Chapter 7 filers.

What caused your bankruptcy?  People who were downsized, suffered the death of a spouse, endured severe illness, or invested with Bernie–crises beyond their control–are looked at differently. It’s called “mitigating circumstances” in the mortgage industry. But those who took one too many world cruises or blew off payments on the McMansion, boat, motor home, and 4 cars when business got a little slow will be looked at more harshly. For example, FHA will write you a mortgage 12 months after discharging a bankruptcy if you have the right mitigating circumstances and have resolved your problems. Everyone else has to go at least another year and probably longer.

How have you handled your debts since the bankruptcy? This is the time to prove that you’ve really learned your lesson. Suck up to your creditors by paying EVERYTHING on time. Use credit only for small purchases and don’t carry balances on your cards. If you choose to stay out of trouble by avoiding credit, that’s okay. FHA guidelines state that you can choose NOT to reestablish a credit history if that’s you’re way of managing your budget. And it won’t be held against you.

Make sure it won’t happen again. Establish an emergency fund (and no, the need for “retail therapy” does NOT constitute an emergency!), enough for several months’ worth of expenses. Buy medical insurance if you don’t have it. If you have credit accounts, never carry a balance–the amount of available credit you use really affects your credit scores. Be prepared to show lenders the actions you’ve taken to avoid financial mis-steps in the future. Experience is a harsh teacher but you don’t have to be a slow learner.