Can you Get a VA Loan With a Bankruptcy in the Recent Past?

You filed for bankruptcy in the past and now you wonder if you will ever get a VA loan. Luckily, the VA loan has some of the most relaxed guidelines when it comes to bankruptcies.

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Of course, they care if you filed for BK and they will want to see that you have recovered from the incident, but they won’t hold it against you. Generally, you have to wait two years after your bankruptcy is discharged to get a VA loan if you filed a Chapter 7 bankruptcy. If you filed Chapter 13, you may be able to get a VA loan as soon as 12 months after filing, but you’ll have to follow different rules then.

We help you understand how to maximize your chances of securing a VA loan after BK below.

A VA Loan After the Chapter 7 Bankruptcy

A chapter 7 BK means you wrote off all or some of your debts. You didn’t pay them or even pay a settlement amount. Once your bankruptcy was discharged, all of your debts were wiped clean.

The good news is that you have a clean slate to work with now. The bad news is that your credit score likely took a big hit. Even though the VA will allow you to apply for the VA loan just two years after your loan is discharged, you have to make sure you built your credit back up in order to qualify.

Technically, the VA doesn’t have a minimum credit score requirement. The average lender usually requires a 620 credit score, though. This shouldn’t be too hard to achieve even after a bankruptcy, but it might take you a little time. You have to build your credit back up after having everything wiped away for you.

You can do this with any of the following in most cases:

  • Apply for a secured credit card
  • Open a small personal loan
  • Apply for an unsecured credit card

If you obtain any new credit cards, it’s important that you pay them off in full each month. This shows lenders and the credit bureaus that you are responsible with your credit now. Just using the cards and paying them off shows good financial habits, which you will need to build your score back up to at least a 620.

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A VA Loan After a Chapter 13 Bankruptcy

If you filed a Chapter 13 bankruptcy, you didn’t wipe away your debts. Instead, you worked out a payment plan to help you get your debts paid off in full. In this case, you have a treasurer that oversees your case.

The trustee collects your payments and disburses them appropriately to each creditor based upon your agreement. The trustee also has to approve any new debts you take on, including a VA mortgage. While you are eligible for a VA loan after 12 months of on-time payments in your debt-restructuring plan, you need the trustee’s approval before you can move forward.

Because of the restrictions, the trustees put on their clients, it’s normal for borrowers to have to wait 2 years after filing for Chapter 13 bankruptcy before they can take on a new VA loan.

The good news is that you don’t lose any of your VA entitlement even if you file for bankruptcy. The only time you would lose it is if you foreclosed on your property as well. If you don’t pay your VA debt and let the bank take possession of it, the entitlement tied to the home would be gone forever. You would not be able to apply to have it reinstated. A bankruptcy, on the other hand, doesn’t affect your entitlement.

It’s always a good idea to move slowly after filing for bankruptcy. Make sure you are truly past the issues and have recovered financially. This will help ensure that you are able to afford the new VA loan and won’t get in over your head again. The precautions put in place are there to protect you financially as well as emotionally after filing for bankruptcy.

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