Filing For Bankruptcy: December 2008

I spent two hours yesterday with the Vice President of Sales at a local bank branch, putting together a loan application to finalize the purchase option on our home. Doing so on an FHA loan will require obtaining a waiver for the two year waiting period after bankruptcy. Not impossible, but not a simple task, either. Should we fail to obtain the waiver, we still have the VA loan option to fall back on.

The loan application process seemed quite tedious, but I found that the only document I needed was a copy of last years W2 form, which was easily obtained from my employer. You should be prepared to provide the following forms when you attempt to obtain a mortgage for your first home after bankruptcy:

Thirty days worth of pay stubs
Two years worth of tax returns
Two years worth of W2 forms
Current lease information
Prior lease information (if less than two years in current home)
Two months worth of statements for all bank accounts
Your entire bankruptcy packet, including discharge order
Actual copies of canceled checks to verify timely rent payment

In our case, I also had to prepare a letter explaining the contributing factors to the financial situation that led to bankruptcy that I feel justify a waiver of the two year waiting period. That letter follows:

In July 2003, just prior to my one year anniversary of employment with [name and occupation omitted], I was released from my position. The company had been fervently pursuing other companies to acquire them, and [company name omitted] was in talks with the [company name omitted] Board of Directors about a deal.

As the newest [occupation omitted] in the District, I was downsized in order to make room for a more senior [occupation omitted] whose location would be closed shortly after the merger. After my discharge from the company, day-to-day operations of my location were taken over by a [occupation omitted] with the assistance of the Assistant Managers.

Shortly after my release from the company, when the merger was finalized, [name of company omitted] sold off their [type of business omitted] business and renamed the company to [name of company omitted]. They then began to close several locations across the country that they felt were underperforming. While my location was not closed, another location in the area was closed and the tenured [name of occupation omitted] of that location was assigned to my location.

While there is no supporting documentation, it is clear that as the junior Manager I was released to allow for the retention of a tenured Manager whose location was targeted for closure.

At the time of my discharge from [name of company omitted], my wife was seven months pregnant with our first child. Though I diligently pursued other employment, even accepting an hourly position for a short while during my search, the decrease in income combined with the medical expenses of the pregnancy and child birth created a situation that proved to be insurmountable.

We attempted for the next three years to make ends meet and tried to work with creditors to resolve our outstanding debts. Many of our creditors demanded no less than payments of more than one month's salary in order to make arrangements on the remaining balance – payments that we were unable to make in lump sums.

As we continued to struggle with resolving our debts, my wife became pregnant with our second child – a daughter born in 2006 – and the added medical expenses further complicated the situation for us. When it became apparent to us that the only way we would ever be able to provide adequately for our family was to get a fresh start, we made the difficult decision of bankruptcy. Since the discharge of our bankruptcy, we have remained debt-free with two exceptions: my wife's student loan which has been paid on time for the past eighteen months and a small credit card account we opened on the advice of a lender who said it would help us to rebuild our credit and to better qualify for a home loan when the time arrived.

Over the past twelve months, we have been paying $1200 per month in rent on a lease to purchase option for the home that we are now attempting to obtain a mortgage for. Our rent payments have been made on time or early every month, we have insured the home with a renter's policy through State Farm Insurance, and have maintained on-time payment history on all of our bills and utilities.

We are now in the wait period while an underwriter reviews our loan application to make a determination on whether to approve our loan. The process, of course, required obtaining a new credit report, and I'm happy to report that in the sixteen months since our bankruptcy was discharged, my credit score has jumped 170 points to over 700. Not quite perfect yet, but much better than it was two years ago when we were deeply in debt with seemingly no way out.

Stay tuned for more updates on the latest in our saga toward home ownership.