Bank Statement Loans After Bankruptcy
Program Overview and Risk Mitigation
Bank Statement Loans after bankruptcy provide a path to home financing for self-employed individuals whose incomes are difficult to verify using tax returns. Bank Statement Loans (BSLs) are Non-Qualified Mortgages (Non-QM) utilized by borrowers in this situation. When a borrower has a prior bankruptcy, lenders apply strict “seasoning” requirements—the minimum time elapsed since the event was resolved—to mitigate the heightened credit risk inherent in non-traditional income documentation.
The borrower’s eligibility for a BSL after bankruptcy is determined by the type of bankruptcy (Chapter 7, 11, or 13), the loan-to-value (LTV) ratio, and the specific program tier selected.
Bankruptcy Seasoning Requirements
The waiting period is consistently calculated from the discharge or dismissal date of the bankruptcy filing to the date of the new loan application. Borrowers currently under a repayment plan of a bankruptcy are generally not eligible for financing.
A. Single Bankruptcy (Chapter 7, 11, and 13)
Seasoning requirements vary significantly by program and LTV, often ranging from 1 year to 4 years:
| Bankruptcy Chapter | Program & LTV Condition | Minimum Seasoning Required |
| Chapter 7 & 11 | Advantage Expanded ( ? 80% LTV) | 2 years |
| Chapter 7 & 11 | Advantage Expanded (> 80% LTV) | 4 years |
| Chapter 13 | Advantage Expanded ( ? 80% LTV discharge/dismissal) | 2 years |
| Chapter 13 | Advantage Expanded (> 80% LTV discharge/dismissal) | 4 years |
| Edge Standard | Single Bankruptcy (Ch 7, 11, 13 discharge/dismissal) | 2 years |
| Edge Standard | Exceptionally aggressive (additional LLPA applied) | 1 year |
| Prime | Single Bankruptcy (Ch 7 or 13 discharged/completed) | 12 months |
| River | Single Bankruptcy (Ch 7, 11, 13 discharge/dismissal) | 4 years |
| Connect | General Alt Doc (within 4 years of application) | Ineligible |
Note: Foreclosures that were included in the bankruptcy may be permitted based on the BK discharge date if the borrower has vacated the property.
B. Multiple Bankruptcies
Borrowers who have experienced multiple bankruptcies are generally considered ineligible for Bank Statement Loans and Non-QM programs, regardless of the seasoning period. Advantage Standard/Expanded guidelines specify a 4-year seasoning period for multiple bankruptcies.
Post-Bankruptcy Credit and Documentation Requirements
Due to the prior derogatory event, strict credit standards and compensating factors are enforced for BSL borrowers, particularly those with less than four years of seasoning:
- Written Explanation (LOE): A signed letter of explanation (LOE) from the borrower is required for any recent credit event seasoned less than 4 years. This explanation is also required for bankruptcies that occurred within the most recent two years in the Horizon program.
- Clean Credit History: For credit events seasoned less than 4 years, the borrower must demonstrate a clean payment history, evidenced by 0x30x12 (no 30-day late payments in the most recent 12 months).
- Credit Reestablishment: All borrowers must have reestablished acceptable credit verified after the credit event.
- FICO Score: Though not directly tied to the seasoning period, BSLs generally require a good credit score (700 and up). The specific LTV available post-bankruptcy will be heavily dependent on the FICO score.
- Unresolved Disputes: Any disputed accounts on a borrower’s credit report may require a full explanation or may necessitate pulling a new credit report to resolve the issue before closing.
- Unsecured Debts: The loan file must include a search for public records to ensure there are no outstanding judgments or liens against the borrowers, which must be cleared or satisfied prior to closing if they affect title.
Impact on Loan Terms
Bankruptcy seasoning periods directly impact the availability of certain loan terms:
- Maximum LTV: Achieving the lowest possible down payment (highest LTV) often necessitates the longest seasoning periods (e.g., 4 years for LTV > 80% in Advantage Expanded).
- Cash-Out Refinance: Cash-out refinance transactions often have higher risk and may be subject to additional restrictions or lower LTV limits following a bankruptcy event.
- Documentation: The Bank Statement documentation (Alt Doc) remains essential. Critically, Tax Transcripts are not required for the BSL program, but any tax returns or transcripts present in the file may render the loan ineligible for the BSL product.
FAQ's
Multiple bankruptcies are generally ineligible regardless of seasoning in programs like Edge Elite and Edge Standard. Other Advantage programs require a 4-year seasoning period for multiple bankruptcies.
Yes, Non-QM Connect requires that borrowers who completed a Bankruptcy (dismissed or discharged) within the four years preceding the application date are not eligible for financing under that product.
All borrowers must have reestablished acceptable credit verified after the credit event. If the event is seasoned less than four years, the borrower must generally show 0x30x12 (no 30-day late payments in the last 12 months).
No. The bankruptcy must have been settled (discharged or dismissed) prior to the loan application. Cash-out proceeds cannot be used to settle the bankruptcy.
Yes, foreclosures included in bankruptcy are permitted based on the BK discharge date, provided the borrower has vacated the property.
For any recent credit event, including bankruptcy, that has seasoned less than four years, a signed letter of explanation (LOE) from the borrower is required. Bankruptcies within the most recent two years must be explained with a signed LOE in the Horizon program.
No. Borrowers who are currently under the repayment plan of a Bankruptcy (any chapter) are not eligible for financing.
The seasoning period begins on the discharge or dismissal date of the applicable bankruptcy chapter (7, 11, or 13) and ends on the note date of the new mortgage.
The standard waiting period (seasoning) is often 2 years if the loan LTV is ≤80%, or 4 years if the LTV is > 80%. Some Prime Non-QM programs may only require a 12 month seasoning period.
No, a waiting period, or “seasoning,” is required. This period typically ranges from 12 months to 4 years, depending on the specific program and the Loan-to-Value (LTV) ratio.
527 Sycamore Valley Rd W, Danville, CA 94526
Toll Free Call : (866) 280-0020
For informational purposes only. No guarantee of accuracy is expressed or implied. Programs shown may not include all options or pricing structures. Rates, terms, programs and underwriting policies subject to change without notice. This is not an offer to extend credit or a commitment to lend. All loans subject to underwriting approval. Some products may not be available in all states and restrictions may apply. Equal Housing Opportunity.
Interactive calculators are self-help tools. Results received from this calculator are designed for comparative and illustrative purposes only, and accuracy is not guaranteed. Shining Star Funding is not responsible for any errors, omissions, or misrepresentations. This calculator does not have the ability to pre-qualify you for any loan program or promotion. Qualification for loan programs may require additional information such as credit scores and cash reserves which is not gathered in this calculator. Information such as interest rates and pricing are subject to change at any time and without notice. Additional fees such as HOA dues are not included in calculations. All information such as interest rates, taxes, insurance, PMI payments, etc. are estimates and should be used for comparison only. Shining Star Funding does not guarantee any of the information obtained by this calculator.
Privacy Policy | Accessibility Statement | Term of Use | NMLS Consumer Access
CMG Mortgage, Inc. dba Shining Star Funding, NMLS ID# 1820 (www.nmlsconsumeraccess.org, www.cmghomeloans.com), Equal Housing Opportunity. Licensed by the Department of Financial Protection and Innovation (DFPI) under the California Residential Mortgage Lending Act No. 4150025. To verify our complete list of state licenses, please visit www.cmgfi.com/corporate/licensing