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USDA Mortgage Bankruptcy Waiting Period

Reviewed by: David Naimey

Approved by: Chad Turner


  • Bankruptcy doesn’t permanently bar homeownership, options like USDA loans exist.
  • Chapter 7 bankruptcy usually requires a 3-year wait for a USDA loan, reducible to 12 months.
  • Chapter 13 allows eligibility after 12 monhths of consistent payments with court approval.
  • Post-bankruptcy, credit rebuilding involves timely payments, low debt, and positive credit history.

Understanding the Path Forward

Filing for bankruptcy doesn’t mean you can’t obtain a home. Chapters 7 and 13 are legal arrangements that help people overcome financial difficulties and bounce back. Mortgage after bankruptcy is still an option. 

Generally, you need to wait 3 years after Chapter 7 bankruptcy before you apply for a USDA home loan. However, there are ways to reduce this time to as low as 12 months. 

If you have previously filed for bankruptcy and foreclosure, you need to understand how this impacts your eligibility for a United States Department of Agriculture (USDA) loan. With our supportive loan officers, we can help determine whether you can apply for a USDA loan based on USDA guidelines even if you filed for bankruptcy recently. 

Post-Chapter 7 Bankruptcy

Chapter 7 bankruptcy, best known for its liquidation process, can have a significant impact on your life and will be reflected on your credit record calculator. However, it doesn’t permanently hinder your ability to secure a new USDA loan. Chapter 7 means you liquidate your assets to repay your debts. You can hold on to some assets according to USDA income limits, but second credit cards, holiday homes, and other expensive belongings may be liquidated. The rest of the debt may be forgiven. 

After Chapter 7, borrowers only have to wait for 3 years before they can apply again. The USDA loan bankruptcy waiting period allows the borrower to rebuild their minimum credit score and demonstrate financial stability, both of which are critical factors in the mortgage loan approval process. Payments on time and credit cards that are not maxed out are signs that you are creditworthy, which is one of USDA loan’s basic requirements. 

Following Chapter 13 Bankruptcy

Chapter 13 bankruptcy, characterized by a repayment plan, offers a different timeline. 

In this scenario, you might be eligible for a USDA loan after just one year of making timely payments under your bankruptcy repayment plan. The USDA recognizes the effort made in consistently meeting your financial obligations, even under bankruptcy conditions.

Before you apply for a mortgage, you must obtain court permission if you’re still under the repayment plan at the time of your loan application.

Rebuilding and Moving Forward

Regardless of the type of bankruptcy filed, the road to a USDA loan involves rebuilding your credit. This includes timely payments on all obligations, lowering your debt-to-income ratio (DTI), and ensuring your credit report reflects accurate information. Lenders will examine your credit history post-bankruptcy to evaluate your commitment to financial responsibility. An Automated Underwriting System, for example, will want to see some form of reestablished credit.

Pay your bills on time

To build up your credit score, you must make sure there are no delinquent events, such as late payments, or collections. All bills should be paid timely to improve your creditworthiness. 

Revolving accounts

An underwriter like Society Mortgage will want to see some form of reestablished credit. We want to know that you will be paying your mortgage on time, every month, for the next 30 years

The best way for this is a revolving account such as a credit card, instead of an installment loan (such as a car loan). That’s because the account closes when you finish your last car loan payment and will no longer report to the credit bureaus. A revolving account, on the other hand, keeps reporting even if you have a zero balance. It thus establishes a credit history that can be followed through time. 

Rent payment 

An underwriter will want to see a verifiable form of rent. This includes canceled checks or direct deposits and shows that you are keeping on top of your financial obligations. The logic behind this is that if you can pay your rent on time, then you can pay monthly mortgage payments. 

USDA Acceptable Extenuating Circumstances

A lender will be more willing to extend a mortgage after Chapter 7 bankruptcy, even before the three-year period. This is called acceptable extenuating circumstances. 

If you filed for Chapter 7 because of an illness, for example, then this may qualify as an exceptional circumstance. After all, you didn’t choose to overspend or miss payments; you were incapacitated. 

Such extenuating circumstances include loss of employment, a non-recurring illness, or the death of a spouse who used to bring in income. Your mortgage lender will focus on events that were out of your control and temporarily made you miss mortgage and debt payments. 

If your mortgage lender agrees to take into consideration acceptable extenuating circumstances, you may qualify for a USDA loan within as little as 12 months of filing for Chapter 7. 

Getting a USDA Home Loan After Bankruptcy Is Possible

The most important thing to remember is that filing for bankruptcy doesn’t close the doors to homeownership; there is still space for loans after bankruptcy. 

With the right mortgage loan approach and a realistic timeframe of financial reconstruction, you can secure a USDA loan and still purchase your dream house. This loan program is designed to assist those in rural areas and could be your key to starting anew in a home of your own even after bankruptcy. 

Navigating the USDA loan process post-bankruptcy, however, can be complex. It’s advisable to seek guidance from loan specialists who understand the nuances of USDA loan requirements. We can provide personalized advice based on your unique financial situation and help you understand the necessary steps to improve your loan eligibility.

Society Mortgage Can Help

Understanding your USDA loan eligibility lets you safely embark on your journey to homeownership. As an Equal Housing Lender, Society Mortgage emphasizes that everyone may apply for a mortgage and realize their dream of a new property.

At Society Mortgage, our expertise extends beyond USDA loans. We specialize in a variety of housing loans, including FHA loans, VA loans, and conventional loans. Our comprehensive guaranteed underwriting system covers all home loan aspects of the lending process, ensuring you receive the services and support you need for your home financing journey. Whether you’re exploring USDA loans or other options, trust Society Mortgage for expert assistance.

We will help you find solutions tailored to your unique situation. If you can demonstrate financial responsibility, there’s a path forward. You can get the support you need, including navigating credit exceptions, with our experienced loan specialists. 

Even with USDA loan bankruptcy, there are acceptable attenuating circumstances that can reduce waiting periods to one year. The best thing to do is talk to a mortgage loan officer about your options. Reach out to us today and discover how you may qualify for a USDA loan or another type of mortgage!

Frequently Asked Questions

Yes, it is possible to apply for a USDA loan while you are still under a Chapter 13 bankruptcy repayment plan, but there are specific conditions. 

You must have made timely payments for at least one year, and you will need to obtain permission from the bankruptcy court. You must show that you have adhered to your repayment plan and have managed your finances responsibly during the bankruptcy period. Lenders will closely evaluate your financial behavior during this time to determine your eligibility.

After a Chapter 7 bankruptcy discharge, you are typically required to wait for a period of three years before you can apply for a USDA loan. This waiting period is necessary to demonstrate financial stability and rebuild your credit score. Lenders use this time to assess if you have recovered from past financial distress and can now handle the responsibilities of a mortgage.

You can easily verify the credentials of your mortgage lender or loan officer through the NMLS (Nationwide Multistate Licensing System) Consumer Access website. This platform provides information about licensed mortgage professionals, ensuring that you are working with qualified individuals.



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