Veterans and military members can face unique financial strains given their service and sacrifice.
And, although bankruptcy rates among military members are comparable to bankruptcy rates among civilians, the effects of a Chapter 7 or Chapter 13 bankruptcy are no less devastating.
Financial hiccups can make it more difficult for veterans and military families to get a VA mortgage for the purchase of a home, or for the refinance of one via the Interest Rate Reduction Refinance Loan (IRRRL) program.
The good news, though, is that experiencing a Chapter 7 or a Chapter 13 bankruptcy doesn't mean that you will lose your hard-earned VA loan benefits, which are granted by the G.I. Bill.
You served the nation, and you are entitled to the benefits that come with your service.
Here's what you need to know about VA loans and bankruptcy for moving forward.Click to see today's rates (Sep 26th, 2016)
Chapter 7 bankruptcy is also known as "liquidation," because instead of instituting a repayment plan, a debtor's assets are sold to pay back creditors.
As compared to other bankruptcy types, the time required to complete a Chapter 7 bankruptcy is often the least, but filing a Chapter 7 bankruptcy can leave a more lasting effect on your ability to get approved for a VA home loan.
This is because the "seasoning period" for a Chapter 7 bankruptcy is typically 2 years from the date of discharge whereas the required seasoning for other bankruptcy types is often less.
A seasoning period, by way of definition, is the amount of time that must pass after the bankruptcy ends.
The waiting period isn't all bad, however.
For many military borrowers with a bankruptcy, the two-year seasoning on a Chapter 7 is immaterial because that time is needed to rebuild credit and build a steadier financial profile anyway.Click to see today's rates (Sep 26th, 2016)
The other common bankruptcy type is known as Chapter 13 bankruptcy.
As compared to a Chapter 7 bankruptcy, where debts are "wiped away", Chapter 13 bankruptcy combines your debts with the help of the judicial system, and establishes a repayment for what you owe.
A Chapter 13 bankruptcy lasts for the length of the court-ordered repayment program, which may be as few as 12 months or as many as 5 years.
The extended recovery period of a Chapter 13 bankruptcy may negatively affect your personal finances, but because you're repaying your debts instead of wiping them away, mortgage guidelines treat consumers with Chapter 13 bankruptcy more favorably than consumers with a history of Chapter 7.
Qualified veterans and military members may be able to get a VA loan just a year removed from filing a Chapter 13 bankruptcy.
Note that this 12-month seasoning period begins with filing and not at the date of discharge; and, consumers who file for Chapter 13 protection may need permission from their bankruptcy trustee to take on new mortgage debt.
Lenders may also want to see a spotless history of on-time payments over the previous 12 months in order to get a VA home loan approval.
Filing for Chapter 7 or Chapter 13 bankruptcy can crush your credit score, which is a key factor in getting pre-approved for VA loan. However, with some "seasoning" and good financial behavior, using your VA benefits to buy or refinance a home should be simple.
Take a look at today's real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.Click to see today's rates (Sep 26th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)