Chapter 13 bankruptcy
Chapter 13 bankruptcy eligibility varies significantly by program type: FHA and VA permit financing while a borrower is still in an active plan (12+ months in, with court permission), while Conventional/Fannie Mae requires full discharge or dismissal before the waiting period clock starts, and Non-QM programs impose their own tiered seasoning periods ranging from 24 to 60 months.
Conventional (Fannie Mae)
Guideline Requirements
Fannie Mae draws an explicit distinction between a discharged and a dismissed Chapter 13:
- Discharged: 2 years from the discharge date to the Note date
- Dismissed: 4 years from the dismissal date to the Note date
"The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge. A borrower who was unable to complete the Chapter 13 plan and received a dismissal will be held to a four-year waiting period."
- Multiple BK filings (more than one within past 7 years): 5-year waiting period; reduced to 3 years with extenuating circumstances
Extenuating Circumstances Exception
- Dismissed Chapter 13: reduced to 2 years with documented extenuating circumstances
- Discharged Chapter 13: no exception permitted to the 2-year waiting period
- DU process: The lender may enter "Confirmed CR BK EC" in DU to instruct it to disregard the bankruptcy in the eligibility assessment, provided the Chapter 13 dismissal was two or more years from the disbursement date
Lender Overlays / Matrix
- JMAC Lending (Conforming/High Balance): "Chapter 13 Bankruptcy: 2 years have elapsed since discharge date to the Note date; 4 years have elapsed since dismissal date to the Note Date."
- Windsor Mortgage: Follows the same framework and adds: "There are no exceptions permitted to the two-year waiting period after Chapter 13 discharge."
FHA
Guideline Requirements
FHA is the most permissive major program — a borrower can obtain FHA financing while still in an active Chapter 13 plan:
- "A Chapter 13 bankruptcy does not disqualify a Borrower from obtaining an FHA-insured Loan, if at the time of case number assignment at least 12 months of the payout period under the bankruptcy has elapsed."
- Satisfactory payment performance during the most recent 12 months — all required payments made on time
- Written permission from the bankruptcy court to enter into the loan transaction
- Documentation that the borrower's current situation indicates the events that led to the BK are not likely to recur
Lender Overlays / Matrix
- Nations Direct (FHA Matrix, manual underwrite): "Chapter 13: Open Chapter 13 allowed after 1 yr. of pay-out period, satisfactory payment history and permission from the BK court for transaction."
- Nations Direct (AXIS FHA): Same active BK rule; manual underwrite overlay requires minimum 660 FICO and maximum 45% DTI for manual downgrades
- AD Mortgage (FHA Overlays): "Loans amounts above $715,000 may not have foreclosure/bankruptcy in last 5 years."
VA
Lender Overlays / Matrix
VA mirrors the FHA structure for Chapter 13 flexibility. Nations Direct (VA Matrix):
- "Chapter 13: Discharged or Open with: 12 months of the payout period has elapsed under the bankruptcy from the date of application; and The payout performance has been satisfactory with all required payments made on time; and The borrower(s) must receive written permission from the bankruptcy court to enter into the mortgage transaction."
- This rule applies consistently across both Nations Direct VA Purchase and VA Cash-Out matrices
USDA
Guideline Requirements
USDA also permits financing during an active Chapter 13:
- Active plan: all required payments made on time, plus written permission from the bankruptcy court or trustee to enter into a mortgage transaction
- Completed/discharged plan of 12+ months on a GUS Refer file: no credit exception required
- Completed plan of less than 12 months prior to submission: a credit exception is required
Non-QM / Alternative Documentation
Non-QM lenders apply their own seasoning periods rather than mirroring conventional waiting periods. Seasoning is measured from discharge/dismissal date to Note date unless otherwise noted.
| Lender / Product | Seasoning Requirement | Conditions / Notes |
|---|---|---|
| Greenbox (Full Alt Doc) | 12+ mos.: Max 65% LTV Purchase/R&T, Max 55% Cash-Out, Max $750k; 24+ mos.: no restriction | As low as 1 day out of BK with LTV restriction |
| Greenbox (Super Jumbo) | 48 months from housing event | Multiple housing events within past 7 years not permitted |
| Mega Capital (Simple MVP) | 48 months minimum | "All bankruptcies must be settled a minimum of 48 months" |
| Mega Capital (DSCR / Expanded DSCR) | 36+ months | "Multiple bankruptcies are not permitted." |
| Mega Capital (Simple Elite Bank Statement) | "Bankruptcy, Short Sale, Deed-in-Lieu, Charge-off Mortgage, NOD and or Foreclosure must be seasoned at least 36 months from time of application." | |
| Nations Direct (Ignite Bank Statement) | "BK Seasoning from Discharged/Dismissed Date: 36 months OR 24 months with a 5% reduction from maximum qualifying LTV. No multiple credit events in 7 years." | LTV reduction available at 24 months |
| JMAC Lending (Limited Doc) | "DTI-qualified loans: waiting period is 2 years from discharge date or 4 years from dismissal date." | |
| Forward Lending (HELOC / CES) | 60 months | "Bankruptcy (BK), Pre-Foreclosure (Pre-FC), Foreclosure (FC), and Deed-in-Lieu (DIL) must be seasoned ≥ 60 months." |
Program Comparison — Chapter 13 Seasoning at a Glance
| Program | Active Chapter 13 | Discharged | Dismissed | Exception Path |
|---|---|---|---|---|
| Fannie Mae (Conventional) | Not permitted | 2 years | 4 years | Dismissal only: 2 yrs w/ extenuating circumstances |
| FHA | Allowed after 12 mos. in plan + court permission | 2 years (AUS) | 2 years (AUS) | No formal ext. circ. exception for Ch. 13 discharge |
| VA (Nations Direct) | Allowed after 12 mos. in plan + court permission | Eligible | Eligible | N/A |
| USDA | Allowed with 12 mos. + court permission | Eligible (no exception needed 12+ mos.) | Credit exception required | Credit exception process |
| Greenbox (Non-QM) | Not indicated | 12 mos. (LTV restricted) or 24 mos. (no restriction) | Same | LTV tiered |
| Mega Capital (DSCR / Expanded DSCR) | Not permitted | 36 months | 36 months | None stated |
| Mega Capital (Simple MVP) | Not permitted | 48 months | 48 months | None stated |
| Nations Direct (Ignite BS) | Not permitted | 36 mos. / 24 mos. w/ LTV reduction | Same | LTV adjustment |
| JMAC Lending (Limited Doc) | Not permitted | 2 years | 4 years | None stated |
| Forward Lending (HELOC) | Not permitted | 60 months | 60 months | None stated |
Key Underwriting Decision Points
- FHA and VA offer the earliest possible entry for borrowers still in an active Chapter 13 — 12 months into the plan with court permission and clean payment history.
- Conventional (Fannie Mae) is stricter — the BK must be fully discharged or dismissed before the clock starts, with no exception available to the 2-year post-discharge waiting period.
- Dismissed vs. Discharged matters on conventional — a dismissal triggers a 4-year wait (vs. 2 years for a discharge), though it can be reduced to 2 years with documented extenuating circumstances.
- Non-QM programs vary widely — from 24 months (Greenbox with LTV restriction) to 60 months (Forward Lending HELOC). Match the borrower's BK seasoning date to the appropriate product tier.
- Multiple BK filings trigger a 5-year conventional waiting period and are outright prohibited by some non-QM lenders (e.g., Mega Capital DSCR program).
