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Buying a House While in Chapter 13

Mark Cappel
UpdatedAug 7, 2008

I am currently in a Chapter 13, would I qualify for a home within the next 12 - 18 months?

I am currently in a Chapter 13 bankruptcy. I have a couple of credit cards. When I make timely payments and keep the balance less than half of the credit limit, will that improve my credit score? I would like to qualify for a home within the next 12 - 18 months while in the bankruptcy plan.

Since you are currently in a Chapter 13 plan, your ability to obtain a home loan will depend on when your bankruptcy plan will be completed.

Buying a house while in Chapter 13

It is unlikely that you will be able to find a new mortgage while you are still in an active Chapter 13 payment plan. Even after your case is discharged, usually after making payments for five years or until all of your debts have been paid, you may have trouble obtaining a loan for at least a couple of years. This time between the end of your plan and when you can qualify for a loan is called "seasoning" in the mortgage business.

A bankruptcy filing will result in a serious derogatory mark on your credit profile, which will prevent you from qualifying for many loans, especially in today’s tight credit market. While I do not think it is impossible for you to find a loan, I expect that you have a lot of work ahead of you, and you should expect to pay a premium in interest and costs for any loan you are able to obtain. In 2005 or 2006, I would have been much more optimistic about your prospects for finding a loan after your bankruptcy is complete, but the sub-prime mortgage market, which offers loans to individuals with credit problems, took a nosedive, making it much harder for borrowers with less than perfect credit to find a loan.

I do not want to sound totally discouraging, though. Your ability to qualify for a mortgage loan will depend on several factors aside from your credit score, including your income, your performance on other secured accounts, and the amount of money you have available for a down payment. Also, the positive payment history on your credit cards should help improve your overall credit worthiness. If you have a good income and a sizable down payment, you may be able to find a decent loan despite your bankruptcy and credit problems.

I encourage you to visit the home mortgage savings center page for more information about purchase loans and links to find lenders that may be able to help you find a loan.

Boost your credit score

If you cannot find a loan that suits your needs, you may want to continue working on your credit score. The more you can increase your credit score, the better loan terms you should be able to obtain. Also, the more time that elapses, the less negative influence your bankruptcy filing should have on your credit rating, allowing your positive trade lines to exert a stronger influence on your overall credit rating.

A home purchase is a major investment, so do not act too hastily. Take your time to make sure you are in the best financial position possible before buying a home. The Credit Resources page, offers a wealth of information about credit scoring and advice on improving your credit rating.

The most important piece of advice I can offer is to make sure you do not borrow more than you can realistically afford to repay. The number of home foreclosures skyrocketed in 2007-2009 due to consumers' inability to keep up with their adjustable interest rates, so make sure that you do not fall into that trap. The risk of running into this problem has decreased significantly due to the crisis in the sub-prime mortgage market, but you should still be careful in examining all of the terms of a loan before signing any agreement.

I wish you the best of luck in finding a loan that allows you to purchase the home of your dreams. I hope that the information I provided helps you Find. Learn. Save.




WWILLIAM, Jun, 2013
I am a disabled with a son and receive a pension plus I work. I am in chapter 13 and have my payments taken out monthly. I own my home, but because of my disability, I need to be closer to the VA hospital in Nashville, TN. I want to sell my home and purchase a home in Nashville. Can I apply to get qualified to purchase a home in Nashville, and sell my existing home while in bankruptcy? This could really help me.
BBill, Jul, 2013
Yes, it is possible to buy anything, even a house, while in chapter 13 if you have the permission of your bankruptcy trustee. Consult with your bankruptcy lawyer about your idea, and ask him or her to file a petition with the bankruptcy trustee. Your lawyer may also be a good source for a referral to a mortgage lender that will work with you. Some lenders and some mortgage programs will be unwilling to work with borrowers in bankruptcy.
vvirgil, Jun, 2011
Buying a house while in chapter 13 bankruptcy with cash. Is this legal?
BBill, Jun, 2011
Consult with your bankruptcy lawyer about this question. In general, people in the midst of a chapter 13 should get the approval of the bankruptcy trustee before adding to their debt, or making a purchase as substantial as a house.
DDorothy, May, 2011
Thank you so much for that information. I have been told some many different answers but this one was more realistic and understandable.