Will a Bankruptcy Prevent a Future Home Purchase?

 A common question for individuals contemplating bankruptcy is “Will I be able to purchase a home in the future?” While a bankruptcy obviously has a negative impact on credit scores and other metrics, the long term consequences may not be as severe as commonly thought. There are federal home loan programs available even to individuals who have a bankruptcy in their past. The Federal Housing Administration (FHA) will guarantee a mortgage following a bankruptcy if (i) it has been at least 2 years since the bankruptcy was discharged, (ii) the debtor has paid any outstanding tax liens or entered into a repayment plan with the appropriate tax authority, (iii) it has been at least three years since resolution of a foreclosure or deed-in-lieu, and (iv) the debtor has satisfied all other judgments. There are even FHA mortgage programs for debtors in the midst of a Chapter 13 bankruptcy. The debtor may be able to obtain an FHA-insured home loan if (i) the debtor has completed 1 year of payments under the Chapter 13 bankruptcy plan, and (ii) the bankruptcy trustee issues a letter stating the amount the debtor can borrow for a home purchase.

While qualifying for a FHA-insured loan is certainly beneficial, the debtor will also have to meet the criteria of the mortgage lender. For example, demonstrating steady employment and showing a reasonable debt-to-income ratio. Credit scores will also be a factor, but given the time periods set forth above it is likely that a debtor can sufficiently repair their credit score following the discharge of a bankruptcy. It is not uncommon for a debtor to be able to purchase a home 2 to 3 years after a bankruptcy discharge. If you are contemplating a bankruptcy, or have recently discharged a bankrupcty, you should speak to a qualified attorney to learn more about your options.