USDA Loan After Bankruptcy

A gavel lying on top of bankruptcy filing papersIf you are considering bankruptcy, you may be worried about how it could affect your chances of securing a USDA home loan, but rest assured that it's still possible. Although it can make qualifying for a loan more challenging, this article will examine how bankruptcy may affect USDA loan approval, giving you the information you need to make the best financial decision. Whether you're a first-time homebuyer or already amid the loan application process, understanding the consequences of bankruptcy on your credit history and score can provide the comfort you need to make the right decision for your future.

Can You Get a USDA Mortgage After Bankruptcy?

If you're considering a mortgage after declaring personal bankruptcy, you might be curious whether you qualify for a USDA loan. Fortunately, it is possible to get a USDA loan even if you've been through personal bankruptcy. However, it would be best if you met specific criteria.

The kind of bankruptcy you've filed determines how long you must wait before being eligible for a USDA loan. For instance, if you've filed for Chapter 7 bankruptcy, where you give up assets and usually take around 3 to 4 months to complete, you must wait at least three years from the date of discharge before applying for a USDA loan.

Alternatively, suppose you've filed for Chapter 13 bankruptcy, which involves a repayment plan spanning three to five years and usually lasts longer than Chapter 7. In that case, you need to wait a minimum of one year after making payments on time for your settlement. The lender will also review your credit score and report to ensure you are not taking any additional risks.

How Long Do You Have to Wait to Get a USDA Loan After Chapter 7 Bankruptcy?

If you're a borrower who has filed for Chapter 7 bankruptcy, qualifying for a mortgage loan through a government-backed loan program like USDA loans may be possible. However, there are specific requirements that you must meet. One is the waiting period, usually three years from the discharge date.

During this three-year waiting period, you must work on increasing your credit score and demonstrating your financial responsibility. You must avoid accumulating new debt and ensure all your bills are paid on time. Lenders will also scrutinize your income and employment history to check your financial stability.

Extenuating circumstances such as job loss or medical issues may extend the waiting period. Nevertheless, you can own a home after bankruptcy with patience and diligence in meeting the minimum credit score requirements and waiting period.

How Long Do You Have to Wait to Get a USDA Loan After Chapter 13 Bankruptcy?

If your financial situation has led you to file for bankruptcy, you may wonder how long it will take to qualify for a USDA loan. Fortunately, obtaining one is not impossible, but there is a waiting period after the bankruptcy filing.

It's essential to note that USDA loans are guaranteed by the United States Department of Agriculture, which supervises various rural development programs. These loans provide zero down payment options and lower mortgage insurance rates than other types. However, after filing for bankruptcy, there is usually a waiting period before you can apply for any loan.

Typically, you must wait at least one year after completing your Chapter 13 reorganization before applying for a USDA loan. This waiting period may extend further if you've filed for multiple bankruptcies recently or have not successfully met your repayment plan. During this period, you can work to rebuild your credit report and ensure that you can buy a home once the waiting period is over.

If you file for bankruptcy under Chapter 13 bankruptcy also, you may be able to get a USDA loan after the bankruptcy has been discharged. In such a case, you may need to provide a letter of explanation to the bankruptcy trustee to confirm that you are financially stable and can repay the loan. The lender needs to underwrite your loan, which means they will review your credit report and evaluate your financial situation before approving your loan.

Rebuilding Your Credit After Bankruptcy for a USDA Loan

You've paid off your debts or negotiated payment arrangements and decided to put your money toward purchasing a home. What are you going to do now?

You must complete the actions outlined below to demonstrate to lenders that your initial difficulties are behind you. As a result, I would want you to complete the following: 

Pay Your Bills on Time

Since your payment history accounts for 35% of your credit score calculation, making on-time payments is critical when restoring your credit after a financial crisis. Remember to keep up with other commitments, such as utility payments, as part of maintaining a regular and on-time payment schedule because they may also contribute to improving your credit score through programs such as Experian Boost.

Instead of Using a Credit Card, Pay With Cash

One of the most significant hazards connected with declaring bankruptcy is relapsing into the same destructive behaviors that got you into problems in the first place. Make every effort to avoid using your credit cards for purchases to the maximum extent possible.

Maintain a Low Balance on Your Credit Cards

The amount of outstanding debt you have accounted for 30 percent of your total credit score calculation, according to TransUnion. Maintaining a bare minimum of credit card debt is essential for reestablishing credit after filing for bankruptcy. Please try to decrease your credit card usage and make it a priority to pay off the amounts on your cards regularly to accomplish this goal.

Save for Emergencies

If feasible, try to put money aside for an emergency savings account to meet unforeseen expenses such as auto repairs and medical bills. If you do this, you will be better able to avoid incurring additional debt, preventing your credit rehabilitation efforts from stalling or reversing.

Obtain a Secured Credit Card

Following a bankruptcy filing, ensuring you don't abuse your credit cards may be an excellent first step in rebuilding your credit after bankruptcy. While using secured credit cards responsibly, you may be able to reestablish your reputation as a reliable borrower in the eyes of financial institutions.

The organization that issues the secured credit card will require you to deposit money with them and then borrow money from them to be approved for one. The interest rates on these cards are often high. Still, suppose they report to all three credit bureaus. In that case, they may be an effective tool for demonstrating to lenders that you are responsible for your money until you can acquire a conventional credit card with better terms and conditions.

You may even be allowed to "upgrade" to an unsecured credit card if you complete all of your payments on time and without incurring any penalties with your secured credit card. Because of this, you will not be required to apply for a new credit card if your credit score increases, and this is excellent news for you.

It is essential to know that applying for a secured card does not guarantee acceptance; as a result, before applying for one, spend some time reading the issuer's requirements. If feasible, choose a provider that helps you evaluate whether you are likely to qualify before consenting to a comprehensive credit check that can further harm your credit score and reputation.

Consider a Credit-Building Loan.

It is also possible to improve your credit without applying for a typical loan by taking advantage of online credit builder loans.

The inability to repay the money is not a prerequisite for receiving the loan. Financial organizations such as banks and credit unions that offer credit-building loans require customers to hold a specific amount of money in an insured savings account or certificate of deposit in their name for a set period to construct a credit history. The borrower then makes monthly payments, including interest, until the loan is paid off.

Having a savings account with your bank may also make it feasible for you to apply for and be approved for a secured loan, allowing you to borrow against the money you already have. In the case of a traditional loan, your financial institution will record your loan repayments to the three major credit bureaus, just as it would with a conventional loan. In the long run, this may help you increase your total score.

How long does it take to get your credit back after bankruptcy?

In most cases, it takes 12-18 months to rebuild your credit profile after filing for bankruptcy, providing that you follow all the necessary steps to restore your credit. Following the prescribed measures, most individuals will notice some improvement if they stick with it after one or two years.

An uncorrected bankruptcy would remain on your credit report unless the default were documented unprofessionally.


If you have experienced financial difficulties, getting a mortgage after bankruptcy can be possible with USDA loans. Given the eased rules regarding bankruptcy, those who have gone through bankruptcy or foreclosure can still apply for and get loan approval from the USDA. Remember that USDA loans require the borrower to reside in a rural area and have a low-income household. Hence, checking your eligibility before applying for a loan after bankruptcy is vital. Additionally, it is essential to note the bankruptcy waiting period and the dismissal date to know when you can apply for a mortgage.

SOURCE: USDA Chapter 10: Credit Analysis