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Part 4 – USDA Loan Credit Requirements: USDA loan after Chapter 13 Bankruptcy

August 26th, 2022 by Sean Stephens

How do you qualify for a USDA loan after Chapter 13 Bankruptcy? What are the USDA Chapter 13 Bankruptcy waiting periods?USDA loan credit requirements for a USDA Loan after Chapter 13 Bankruptcy in Florida, Texas, Tennessee, & Alabama

Last week we spoke about how to qualify for a USDA Loan after Chapter 7 Bankruptcy. While today’s topic is focused on how to qualify for a USDA loan after Chapter 13 Bankruptcy, what many do not realize is that there are different qualifying requirements depending on the type of bankruptcy.

It is true that guidelines for a USDA Loan after Chapter 13 bankruptcy offer extreme qualifying flexibility. In today’s video, I am going to share with you details on how you can qualify for a USDA loan with only one day after a Chapter 13 Bankruptcy.

Additionally, I will walk you through the steps on how USDA loan Chapter 13 guidelines will allow you to qualify while a repayment plan is still in progress!

Now, before we get started, don’t forget to take advantage and download our USDA Blueprint for Success with the link below. This free guide is designed to walk you through the process step-by-step and is a great tool for both homebuyers and Realtors alike.

USDA Loan Credit Requirements: USDA loan after Chapter 13 Bankruptcy!

As a starting point, here is some basic background on Chapter 13 bankruptcy courtesy of USCourts.gov:

 “A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.”

USDA Guidelines state that Chapter 13 bankruptcy proceedings…….

“allow the debtor to reorganize their finances and debt payments under the supervision and approval of the court. An impartial trustee consolidates the debt and distributes money to each creditor.”

USDA qualifying after a Chapter 13 Bankruptcy is broken down into the following categories:

1. USDA Loan Credit Requirements – Chapter 13 Bankruptcy Plan in Progress

USDA loan with a previous bankruptcy in FloridaYes, believe it or not, you can actually qualify for a USDA loan while a Chapter 13 bankruptcy plan is in progress!

For those loan files where GUS has issued an Accept underwriting recommendation, no credit exception is required even though the applicant is still making payments within a Chapter 13 bankruptcy!

As a quick reminder, GUS stands for the Guaranteed Underwriting System which is USDA’s automated under system (“AUS”). It provides underwriting recommendations which then determine the required level of documentation and guidelines to be followed.

However, for those files that receive either a GUS Refer, Refer with Caution, or for those manually underwritten files, USDA guidelines state the following when a Chapter 13 bankruptcy repayment plan is in progress:

  • Lender must document 12 months of debt restructure plan has elapsed;
  • All required payments have been made on time; and
  • The applicant has written permission from the bankruptcy court/trustee to enter into a mortgage transaction; (This is referred to as a “Motion to Incur Debt”)
  • If the bankruptcy court/trustee does not review or issue permissions, the creditor may determine if the applicant is an acceptable credit risk.
  • No credit exception is required!

Under either scenario, the lender must include any Chapter 13 bankruptcy payment amount within the applicant’s qualifying ratios.

2. USDA Loan Credit Requirements – Chapter 13 Bankruptcy waiting periods

Unlike a Chapter 7 bankruptcy qualifying which requires a longer waiting period, once a Chapter 13 bankruptcy is discharged, the following reduced waiting times How soon can I get a USDA loan after bankruptcy in Florida, Alabama, Texas, Tennesseewill allow for faster qualifying:

For those plans that are completed (discharged) and the loan file receives a GUS Accept, no credit exception is required!

Additionally, for those who apply for a USDA loan 12 months after their Chapter 13 Bankruptcy has been discharged and receive a GUS Refer, Refer with Caution, or for those manually underwritten files, no credit exception is required.

However, if you are trying to qualify for a USDA loan with as little as one day after a Chapter 13 Bankruptcy discharge, this is still possible, but a credit exception will be required.

3. USDA Loan Chapter 13 Guidelines – Key points

In summary, USDA Chapter 13 Bankruptcy guidelines can allow for shorter USDA bankruptcy waiting periods when compared to a Chapter 7 Discharge.

This can provide much-needed financing flexibility for those who may previously thought homeownership was out of reach!

USDA loan chapter 13 guidelines in Florida, Alabama, Texas, TennesseeRemember, the USDA experts on my team are here to help! Just call or email to discuss your scenario and let us show you the “Metroplex” difference.

800-806-9836 Ext. 280
SeanS@MPLX.org

I want everyone to make it a great day, and look forward to seeing you right here for the next tip of the week!

P.S. – You can download our “USDA Blueprint for Success” by CLICKING HERE.

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