Can I Get a VA Home Loan If I Filed Bankruptcy

By David Rouse

The U.S. Department of Veterans Affairs (VA) allows homeowners with a previous bankruptcy to purchase a home once they satisfactorily reestablish their credit. VA-approved lenders cannot automatically decline a loan just because a homeowner filed for bankruptcy in the past. Bankruptcy does not permanently prevent the homeowner from obtaining a VA loan; it is designed to help people get a fresh start with their credit, not prevent them from obtaining new credit.

The two most common types of bankruptcy people file are Chapter 7 and Chapter 13. Chapter 7 bankruptcy provides a clean slate, usually within 90 to 120 days after you file. Chapter 13 is a consolidation bankruptcy, which takes all of the filer's debts and creates a repayment plan that lasts for up to five years. At the end of the bankruptcy proceedings, the borrower receives a discharge of all of the remaining debts. The veteran must provide a copy of her discharge paperwork with the VA loan application.

VA also considers the circumstances which caused the bankruptcy. Some bankruptcies are caused by circumstances out of the control of the borrower. If a borrower was laid off, became ill or injured and was unable to work, the lender may consider this differently than if the bankruptcy resulted from financial mismanagement. The lender reviews the bankruptcy discharge paperwork. If the homeowner wishes to claim the bankruptcy was due to uncontrollable circumstances, he must provide proof of the circumstances at application. If the lender deems the bankruptcy a result of unforeseen circumstances, then the lender may approve a VA loan sooner than normal.

The minimum time the veteran must wait to obtain a VA loan after bankruptcy is 12 months. The clock begins at the discharge of the bankruptcy. The VA lender may approve a bankruptcy that is only 12 to 24 months old if the bankruptcy was caused by unforeseen circumstances. Additionally, to obtain a loan after a bankruptcy which is only 12 to 24 months old, the homeowner must have reestablished his credit. If the lender does not agree the bankruptcy was caused by unforeseen circumstances, the homeowner must wait at least two years after the discharge of either a Chapter 7 or Chapter 13 bankruptcy.

After the bankruptcy, the borrower should work on reestablishing her credit. The borrower should open one or two small credit accounts and make all of the payments on time --- every time. This may mean getting a credit card that only allows a $300 to $500 balance and requires a high interest rate. Using this card and making payments on it each month helps the homeowner establish a new credit history. Eventually, the homeowner may wish to open up a second credit card and finance a car in the future. As long as the homeowner continues to make good payments, this will help increase the homeowner's credit ratings. After two years, if the homeowner makes all of the payments on time, her credit should qualify her for a VA mortgage.

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