Reasons for bankruptcy can result from job loss, divorce, medical bills, and many other life situations that mitigate an ability to pay debts. There are different types of bankruptcies depending upon your situation. In all cases, it is usually a last resort as it does wreak havoc on your credit for up to ten years. However, the good news is that credit is recoverable, and yes, you can obtain a mortgage again after a bankruptcy.

Below are two types of bankruptcies as well as tips to credit recovery and becoming mortgage ready again. 

Chapter 7: This bankruptcy type typically lasts anywhere from three to four months before all credit is dissolved. This bankruptcy includes all creditors and can also include your mortgage. However, it's important to understand if you are considering not paying your mortgage, the lender can still foreclose, and you can lose your home. Chapter 7 allows you to dissolve all of your debt, however the mortgage lien on your property still remains. There are exemptions in some cases, and they will vary from state to state. It's important to consult with a bankruptcy attorney about any exemptions that may or may not exist. Once your Chapter 7 bankruptcy is discharged, you can start re-building your credit by applying for small balance credit cards and pay them off every month. Start with one or two and build slowly from there without overextending your ability to pay. Paying rent or mortgage payments on time for 12-24 months will be a key indicator for lenders who are looking to provide a new mortgage for you.

Chapter 13: This bankruptcy is more of a re-organization of debt. A trustee from the court will handle your monthly payments. This will include a modified payment plan to your debtors. These bankruptcies typically last 3 to 5 years depending on your situation. Mortgage payments are included in the payment plans, and your credit can recover more quickly. Applying for a mortgage after a Chapter 13 bankruptcy can be an easier path, as you've proven to creditors you can still make monthly debt payments in spite of the bankruptcy. Credit scores can actually increase during a Chapter 13 bankruptcy, because the payments can be reported as paid on time.

Bottom Line: Talk with your loan officer who can provide the best mortgage options should you be looking to refinance or purchase a home after a bankruptcy. Although guidelines to a new mortgage are more stringent, there are mortgages available for those who are recovering from bankruptcy. The key factors? Number one: time needed to rebuild your credit, and number two: prove you have the ability to pay your debts on time again.

Source: Mortgage Market Guide