Many Florida residents believe that their chances of getting a mortgage are close to zero when their financial situations require them to seek protection from a bankruptcy court. Fortunately, bankruptcy does not have the same stigma that it did in decades past. It might give them hope to know that it is possible to obtain a mortgage during or after a Chapter 13 bankruptcy, depending on the circumstances.
Lenders often view those who file Chapter 13 — often called a debt reorganization — more favorably than those who file Chapter 7 because Chapter 13 filers are making an effort to repay at least some of their debts. Further, the credit reporting agencies view this reorganization more favorably as evidenced by the fact that it must be removed from an individual’s credit report after seven years instead of 10 for a Chapter 7. Regardless of the chapter filed, a person’s credit score does not suffer the same damage as those who are in financial distress and do not file at all.
The impact of a Chapter 13 is also less, which makes the individual more attractive as a borrower. If a Florida resident is unable to secure a mortgage during the bankruptcy proceedings for some reason, the normal waiting period is approximately two years. At that point, he or she can apply for a mortgage.
After the housing market crash, those who filed for Chapter 7 or Chapter 13 bankruptcy no longer saw doing so as a last resort or something of which to be ashamed. This has also changed the way that lenders view it as well. Lenders are now more amenable to borrowers despite the presence of a bankruptcy on their credit reports.
Source: themortgagereports.com, “Mortgage With A Chapter 13 Bankruptcy“, Mark Cappel, Nov. 22, 2016