After you file for bankruptcy under Chapter 13, you are subject to extensive financial control by the bankruptcy trustee. Even if you still own property like a home, it becomes part of your bankruptcy assets in Chapter 13. The trustee manages this property and makes important financial decisions that affect your property. Can you buy a house while in Chapter 13?
Buying a home during Chapter 13
Buying a home is also possible in Chapter 13, but it can be a little more complicated.
Before you begin, you must obtain permission to incur debt from the trustee in bankruptcy. This allows you to apply for a mortgage to finance your home. You can usually do this as long as you’re on Chapter 13 plan for a reasonable time, you have ongoing payments, and you don’t have any overdue bills since you went bankrupt.
After filing for bankruptcy in Chapter 13
Filing for bankruptcy under Chapter 13 takes three to five years – but that doesn’t mean you can’t buy a home at that time. You can get an FHA loan before you implement the plan if you meet the following conditions:
- You have paid 12 months of subscription fees.
- The court approves your request to buy a home with an FHA loan.
- You can show that the reason for filing for bankruptcy is unlikely.
Remember that the court may not be on board if you have to reduce the amount paid to creditors in your plan to qualify for a home loan. And if you need to provide the conditions for buying a home in the application (the legal procedure you will use to submit the application), you may have difficulty closing the contract. Many sellers would not like to take their home to the market with the chance to get the necessary court approval.
If you are considering this option, you should consult a bankruptcy lawyer before submitting your application. A lawyer can advise on the feasibility of future loan qualifications and, if possible, help you by developing a repayment plan that will help you achieve your goal.
Qualifying for a Bankruptcy Mortgage from Chapter 13
Depending on the circumstances of the case, you may qualify for a mortgage while still working as planned in Chapter 13. The FHA, VA and USDA (Rural Housing) loan programs approve borrowers who are covered by a court-supervised payment plan.
In addition, some alternative mortgage programs (called Non-QM, Alt-A or Non-Prime) offer home loans to people under the plans in Chapter 13.
What the debtor must prove
To obtain court approval to incur debt for a new mortgage, the debtor must provide information regarding:
- The need and location of the property to buy;
- House purchase price;
- The amount and source of the advance;
- Estimated monthly home payment, including tax and insurance deposit; and
- Payment option provided.
The debtor will also need to show proof of current income, which includes the last three months of payments. The debtor must also present his / her resulting budget if the housing loan would be approved.