After Filing for Chapter 13 Bankruptcy, Can You Still Rent or Buy a Home?

It’s natural to wonder whether you’ll be able to rent or buy a home when you’re faced with filing for Chapter 13 bankruptcy. After all, everyone has to live somewhere—even those who turn to the court system for help with handling their debts. Applying for bankruptcy will affect your credit history for years to come and can make getting approved for housing a challenge. But will Chapter 13 bankruptcy quash your chances of ever renting or owning again? Let’s first get an overview of how Chapter 13 bankruptcy works.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy—sometimes called a wage earner’s plan—is typically sought by people who want to pay off their debts but can’t afford to pay them all off at the same time. Instead, they turn to the courts to essentially buy time to pay off their bills over time. It’s available to anyone whose unsecured debts are less than $394,725 and secured debts are less than $1,184,200. Today, one-third of all bankruptcies in the United States are Chapter 13.

Can I rent or buy a home while I’m in Chapter 13 bankruptcy?

Are you allowed to buy or rent a home in Chapter 13 bankruptcy? Yes. Will it be more challenging? Certainly.

Chapter 13 bankruptcy affects your credit history, and because landlords and lenders take credit into consideration, having chapter 13 bankruptcy on your history can make the process of renting or buying a home more complicated. But that doesn’t mean it’s impossible.

How to rent a home during Chapter 13 bankruptcy

When you’re ready to apply for a rental, start by writing a letter that explains your situation in the best terms to prospective landlords.

“Keep in mind there are zillions of bankruptcies today, many for reasons not caused by the bankrupted person, and it does not make you a bad person,” says Ginny Ollis, a Realtor® with Coldwell Banker Residential Brokerage in San Diego. “You might make that clear by defining how [the bankruptcy] happened in your letter.”

It can also help to ask people in your life to write you letters of recommendation. A current landlord, a boss, and well-respected members of your community can all be good references if they’re willing to attest to your responsibility as a renter.

Ollis is also a fan of sending along photos of your current home, photos that show it’s well-maintained and in good condition.

If you have a family, especially kids, Ollis says throw photos of them into the mix, too. “Kids can be a selling point. Use a photo or take them along when you tour the property.”

How to buy a home during bankruptcy

It might be trickier than renting, but buying a home amid Chapter 13 bankruptcy is possible, too, says Aram Shah, a Realtor with Florida Capital Realty in Doral, FL.

“You can possibly get a home within 12 months of filing, but it all depends on your situation.” Shah says.

Applying for a mortgage through the Federal Housing Administration is likely to be your best bet. Under FHA guidelines, lenders can approve an FHA-insured mortgage to someone in Chapter 13 bankruptcy if the following has been documented:

  • One year of the pay-out period under the bankruptcy has elapsed.
  • The borrower’s payment performance has been satisfactory, and all required payments have been made on time.
  • The borrower has received written permission from bankruptcy court to enter into the mortgage transaction.

When in doubt, if you’re stressed out about renting or buying under Chapter 13 bankruptcy, Ollis has this advice: “Spend a year building an excellent reputation from landlord and neighbors in a less desirable home, and then try again when all this is past.”

Article by Jeanne Sager