The One Number in USDA Paragraph 4.14.B.1 That Decides How Rebecca's Chapter 7 Counts
Rebecca found one number in the USDA guideline that decides whether her old Chapter 7 bankruptcy counts against her. Most people never look for it, and it changes how she should apply. I am Jason Sharon, a licensed mortgage broker with Home Loans Inc, and here is her story and the rule behind it.
Meet Rebecca
Rebecca is a fictional, illustrative character, not a real client. She lives near Moncks Corner, SC, and she has a past Chapter 7 bankruptcy. She wants to know whether a USDA loan is still a realistic path, and she has heard conflicting things. Some people told her a bankruptcy is a permanent roadblock. Others told her to just apply and see. Neither answer gave her a way to know where she stands.
That is a situation that comes up often. A bankruptcy feels like one big mark, so many people assume it either matters forever or does not matter at all. The guideline is more specific than that.
The number: 36 months
The USDA guideline, Paragraph 4.14.B.1, draws a line at 36 months. The clock runs from the date of the Chapter 7 discharge to the date of the loan application. That is the number Rebecca found.
Here is the exact text for the situation where the discharge is more than 36 months before the application:
"Applicants with a Chapter 7 bankruptcy discharged more than 36 months prior to the loan application are not considered to have unacceptable credit as long as they have re-established good credit."
Notice the condition at the end. The bankruptcy itself is not the whole story. The guideline also looks at what happened after it.
What re-established good credit means
The guideline describes re-established credit in three plain parts. First, consistently making payments on time. Second, not incurring additional or excessive debt. Third, keeping balances below credit limits.
If Rebecca is more than 36 months out, those three habits are what she needs to be able to show. That turns a vague worry into a short list she can actually work on.
What if she is under 36 months
The guideline does not shut the door on a discharge that is less than 36 months old. In that case, the Loan Approval Official may make a credit exception if the bankruptcy was due to extenuating circumstances. That word may matters. It is a possibility, not a promise, and it depends on the circumstances behind the bankruptcy and the documentation that supports them.
So for Rebecca, which side of the line she is on changes the next step. Over 36 months, she focuses on showing re-established credit. Under 36 months, she focuses on whether an exception can be considered and what paperwork would be needed.
What Rebecca does today
First, she finds her Chapter 7 discharge date. It is on her bankruptcy discharge paperwork, and everything else depends on it.
Second, she asks her loan officer this, word for word:
"My Chapter 7 was discharged on this date. Please count the months from my discharge to my application date, and tell me whether I am more than 36 months out under USDA Paragraph 4.14.B.1."
Third, she follows up based on the answer. If she is more than 36 months out, she asks what is needed to show re-established credit. If she is under 36 months, she asks whether the Loan Approval Official can consider a credit exception for extenuating circumstances, and what documentation is needed.
That one date and one question replace guessing with a clear answer.
A few honest limits
This is general information about one part of one guideline. A credit history is only one piece of a USDA application, and every file depends on the full guideline and the borrower's complete situation. Nothing here is a promise of approval.
If you have a past Chapter 7 and want to know which side of the 36-month line you are on, call me at 843-LOW-RATE. I find the path.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: The One Number in USDA Paragraph 4.14.B.1 That Decides How Rebecca's Chapter 7 Counts
