VA Loans and Bankruptcy
No one likes bankruptcy. Even the word itself has a foul sound. Yet when things get out of hand then a bankruptcy can be a welcome relief as well as a blemish on an otherwise pristine credit report. When a consumer opens up a credit card account or finances an automobile, that consumer has full intentions of paying back the obligation on time, every time. If he had no such intentions, it’s likely his credit history would reflect that attitude and credit wouldn’t be extended in the first place. Bankruptcy is most often the result of a loss of a job, a divorce or worse- a death in the family.
Bankruptcy is an option where past and current debts are either repaid over a specified period of time, called a Chapter 13, or “wage earners” plan or completely wiped out by way of a Chapter 7 bankruptcy filing.
For purposes of VA loans, what do the VA lending guidelines say about extending credit to someone who has filed for bankruptcy in the past?
First, although bankruptcies can appear on your credit report for seven years or more since the discharge, that does not preclude you from getting a VA mortgage during that period of time.
You may be eligible for a VA loan if your bankruptcy has been discharged for as little as 24 months, not seven years. As long as you’ve not had any other negative credit such as additional late payments or collection accounts, including past due rental payments, VA lenders may still approve you for a VA home loan. There are also allowances for a VA home loan to be evaluated if the bankruptcy is less than two years and more than one year discharged as long as credit has been re-established and the bankruptcy determined to have been out of the control of the borrower and not as a result of credit abuse.
Bankruptcies and VA loans can still work together. It’s not the end of the road…sometimes its just the beginning to a fresh start.