You can keep your VA benefits even after bankruptcy
Image Source: Flickr User US Army Africa
Serving in the military is a tough job – some say one of the toughest. Soldiers, sailors, and airmen work long hours, often far away from their families. The pay is not impressive compared to the sacrifices made by servicemen and their families, but there are a few benefits that are unique to the Armed Forces. One of these is the VA home loan program. The Veteran’s Administration home loan benefit allows service men and women to get a home loan with no down payment. But if you’re a veteran who has filed bankruptcy or lost a home to foreclosure, you may wonder if you lost this valuable benefit.
Mortgage after bankruptcy
For most home buyers that are not seeking a VA loan, but have had a bankruptcy, most lenders require a waiting period. After a Chapter 7, the waiting period is usually two years from the date of discharge and one year after a Chapter 13 is filed. Also, a certain threshold of credit score is required. Credit scores must be at least 580 for an FHA loan, but the higher, the better. Higher credit scores are required for non-FHA loans. With a VA loan, the minimum credit score is usually 620 plus the waiting period mentioned above. Other than the waiting period and credit score requirement, though, filing bankruptcy should not be a barrier to a future VA loan.
Mortgage after foreclosure
The fallout from a foreclosure will affect a future VA loan differently based on a couple of different concerns. If your mortgage involved with the foreclosure was not a VA loan, you would usually have to wait two years after the foreclosure before being able to secure a VA loan. If the mortgage in the foreclosure was a VA loan, the waiting period will be longer and will likely be closer to three years. On top of that, foreclosures will hit your credit score hard and can knock up to 100 to 150 points off your score. You’ll also have to wait for your credit score to recover in addition to the waiting period. Don’t think that if you had a VA loan foreclose that you have lost the benefit for good – that’s just not true.
Combining bankruptcy with foreclosure
Bankruptcy and foreclosure often go hand in hand or one after the other. If you file bankruptcy to try and avoid foreclosure but then later you end up losing your home to foreclosure, the two to three year waiting period would restart from the later date. If you’re struggling with your house payment and know that foreclosure is a possibility, surrendering the home to the lender instead of foreclosure as part of a bankruptcy can minimize the waiting period by combining the two events. And if you’ve recently been hit with a foreclosure, filing bankruptcy can help clear out your debts to get your finances back in order and help you get your credit score rebounding again as soon as possible.
Bankruptcy for veterans
Soldiers and veterans can take advantage of bankruptcy just like with civilian consumers. In fact, bankruptcy can be even more useful to active duty soldiers. Why? Credit problems and debt collections can put your security clearance at risk and spell an end to your military career. Filing bankruptcy can turn this around and help you keep your security clearance – and your job in the Armed Forces. For veterans that work for the government, security clearances may also be an issue and bankruptcy can help in those cases as well for many financial circumstances.
At the Law Offices of John T. Orcutt, we understand the concerns of military members when it comes to debt. Because North Carolina has such a significant military presence, our attorneys routinely work with service members and veterans struggling with financial problems. If you’re a service member, veteran or government employee stuck with debt you can’t afford to pay, call +1-919-646-2654 today to schedule a free North Carolina bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.