Mortgage lenders, as well as all other lenders, can't refuse to give you a loan simply because you filed for bankruptcy protection in the past. They can, however, make you wait a specific number of months and re-establish a satisfactory credit history before extending credit. The federal government designed the bankruptcy laws to give a bankrupt person a fresh start. The bankruptcy can't be used to punish the borrower for the rest of his life. Obtaining a mortgage loan with a bankruptcy depends on the age of the bankruptcy and the type of bankruptcy filing.
Chapter 7
Chapter 7 bankruptcy provides a virtually clean credit slate. Most or all of your current debts owed are eliminated, leaving you only with the debts you choose to reaffirm, or that aren't dischargeable, such as student loans, alimony and child support. As of 2011, conventional mortgage guidelines require a home buyer to wait four years after the discharge of a Chapter 7 bankruptcy before qualifying for a new conventional mortgage. The Veterans Affairs (VA) and Federal Housing Administration (FHA) require a home buyer to wait only two years after the discharge of a Chapter 7 bankruptcy to refinance or purchase a home.
Chapter 13
A Chapter 13 bankruptcy consolidates all your debts and arranges for you to pay for them over a five-year repayment period. This doesn't wipe the slate clean immediately like a Chapter 7, but it does give you a chance to catch up on your debts as you make payments over time. The bankruptcy court creates a payment that's affordable for you, even if it doesn't completely pay off all your creditors. Secured debt, such as auto loans and mortgages, must be paid in full if you wish to retain the property. Some lenders ask you to wait 12 to 24 months before refinancing after a Chapter 13 discharge, but others allow refinancing sooner.
Open Chapter 13
A lender can refinance a homeowner in an open Chapter 13 bankruptcy and use the refinance to pay off the bankruptcy, which helps you receive your discharge early. In addition, the borrower may refinance her current mortgage while in an open Chapter 13 bankruptcy, if the trustee approves the terms of the new loan and the lender allows refinancing while in an open bankruptcy. Lenders aren't required to refinance someone in an open Chapter 13 bankruptcy simply because the trustee says it's permitted.
Recovering From Bankruptcy
When you come out of a bankruptcy proceeding and you receive your discharge, there are still ways to purchase a home. You don't have to wait seven or 10 years to purchase a home just because you filed for bankruptcy. Re-establish your credit as soon as possible after your bankruptcy discharge. This may mean opening a small credit card with a high interest rate, or a secured credit card through a bank. Opening up one or two of these accounts and making all payments on time will help you recover your credit standing. You may also choose not to obtain any new credit at all; some lenders won't penalize you for this. The worst thing you can do is open up a new credit line and not pay on time. This only proves to the lenders that you don't take your credit seriously.
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