How does a bankruptcy affect a borrower's eligibility for an FHA mortgage?

A Chapter 7 bankruptcy (liquidation) does not disqualify a Borrower from obtaining an FHA-insured Mortgage if, at the time of case number assignment, at least two years have elapsed since the date of the bankruptcy discharge. During this time, the Borrower must have:
  • re-established good credit; or
  • chosen not to incur new credit obligations.
An elapsed period of less than two years, but not less than 12 months, may be acceptable, if the Borrower:
  • can show that the bankruptcy was caused by extenuating circumstances beyond the Borrower’s control; and
  • has since exhibited a documented ability to manage their financial affairs in a responsible manner.
A Chapter 13 bankruptcy does not disqualify a Borrower from obtaining an FHA-insured Mortgage, if at the time of case number assignment at least 12 months of the pay-out period under the bankruptcy has elapsed.
The Mortgagee must determine that during this time, the Borrower’s payment performance has been satisfactory and all required payments have been made on time; and the Borrower has received written permission from bankruptcy court to enter into the mortgage transaction.
For additional information see Handbook 4000.1 II.A.4.b.iii(F) and II.A.5.a.iii(H) at

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-04583