Loan preapproval and Chapter 13 in process!

[Anonymous]

My brother and his wife just got preapproval for a new construction home that will be built in seven months with a closing date around Nov 1. He was thinking of filing chapter 13 bankruptcy for some unsecured debts only because he’s afraid of the creditors suing him in the meantime. I know it sounds crazy but he has good credit just some debts that he may get sued for. If he started the process of chapter 13 bankruptcy now would that hurt his final loan approval and ability to close? Would it be on his credit reports or in some type of database and the lender could see it?

[Anonymous]

Yes. He would not be able to close. Most lenders don't give loans when in bankruptcy. He would have to wait 5 years... I think. However its a bad idea to do that's before closing on his home, he won't get the house.

[NC_Mtg_Loaner]

Filing for bankruptcy and being amidst bankruptcy is an automatic deal killer for his mortgage scenario.  Why would he consider buying a home if he's having difficulty paying other creditors?

FHA/VA/USDA allows for consumers to obtain an FHA mortgage loan if the consumer is amidst a Ch. 13 bankruptcy, but they must provide a one year on time payment history and petition the court in order to be approved.  The waiting period is longer for conventional loans.

[Anonymous]

No he will NOT be able to close.  YES, it shows on public records and every credit reporting agency.  I was Ch13, discharged Dec 2015.  Apped for mortgage Jan 2017; little over a year later.  Built the home and moved into it in May last year.

Its true you can app for a mortgage after a year WITH APPROVAL from the trustee servicing the bankruptcy, BUT with a 13 your credit score is going to go into the crapper for a long while; until after discharge and start rebuilding.  Also any credit he DOES have now, if he files for BR, he will have to CLOSE ALL OF THEM.  You dont get to pick and choose.