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FHA Manual Underwriting During Chapter 13 with Credit Card Late Payment
Hello,
I’m reaching out because I’m looking for an experienced FHA lender who can help with an active Chapter 13 situation. First and foremost, I had two late payments in the past 12 months on a secured credit card, the Open Sky Credit Card, in August, 2025 (one 30-day late and one 60-day late), and my wife had a 30-day late payment (32 days late, two days after the 30-day grace period). I have the reason for the late payment, which I can explain if you need me to. It was supposed to be auto payment every month from my debit card. I lost my debit card, and I canceled it and got issued a new one. I contacted Open Sky Credit Card and told them I have a new debit card because I lost the old one. However, my wife thought I was going to contact her credit card companies and have her cards on auto-payment with the new debit card I got, which I thought I did. Anyways, I suddenly got a notice from my mortgage broker stating I have a credit card late payment for August 2026, and my wife has a credit card late payment. Impossible, I thought. My wife and I did some digging and found out that Credit Card Company used my old, lost debit card to take the payment out, not the new debit card I called in. I specifically called and spoke with a person (could not tell whether it was a he or a she due to the strong, thick accent and the representative being very difficult to understand). My wife and I were alarmed, and there was no way I was going to be late because I am in the mortgage process to buy a new home. What happens if I were to experience identity theft? Maybe I should close out my bank account and open a new one? I was told that doing so will cause a nightmare during the mortgage process. I was advised then to file a police report so the lost debit card is documented. That is what I did. FHA manual underwriting requires that I cannot have any late payments in the past 15 months.
We currently have a new-construction home with Maronda Homes that is already built and ready to move forward. Our financing with the builder’s lender, RMC Mortgage, was denied, but Maronda is allowing us to use another lender, and the builder incentives will carry over.
I am currently in an active Chapter 13. We have verification letters from both the Trustee and our attorney stating that all required payments have been made for the last 15 months and that the account is in good standing. We also have Trustee approval to incur the new mortgage debt.
I recently had a 60-day late payment on a credit card during a death in our immediate family. This was an isolated situation during a difficult period, and I can provide a letter of explanation and supporting documentation if needed.
Because the home is already completed, timing is very important. I’m looking for a lender experienced with FHA loans during an active Chapter 13, manual underwriting, and borrowers with recent credit issues.
Would your team be willing to review our situation and determine whether there is a path to approval?
Thank you,
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1 Reply
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Good morning Johnathon and Michelle,
There are two important issues I would fix before sending this to any lender. First, the draft gives two different explanations for a 60-day credit card late payment—the failed autopay/debit-card replacement and a death in the immediate family. Use only the explanation that actually applies to that specific late payment. Second, the dates say August 2025 in one place and August 2026 later. Those dates should match the credit report.
I would also remove the statement that FHA automatically requires 15 months with no late payments. Current FHA manual-underwriting guidance is more nuanced. For revolving accounts, FHA defines “major derogatory credit” in the prior 12 months as a payment over 90 days late or three or more payments over 60 days late. If the overall history does not meet FHA’s satisfactory-credit standard, the lender must perform additional analysis and can approve when documented extenuating circumstances support the delinquency. (HUD)
For an active Chapter 13, FHA generally permits financing once at least 12 months of the repayment period have elapsed, required bankruptcy payments have been made satisfactorily and on time, and written permission to incur the mortgage debt has been obtained. (HUD)
I want Mandy and Janet to take a look at this and here is the version I would send:
Hello,
I’m reaching out to see whether your team would be willing to review an FHA purchase loan involving an active Chapter 13 bankruptcy and recent credit-card late payments.
We already have a completed new-construction home under contract with Maronda Homes. The house is built and ready to close. The builder’s affiliated lender, RMC Mortgage, was unable to approve our financing, but Maronda has agreed to allow us to use another lender while retaining the builder incentives.
Chapter 13 Bankruptcy
I am currently in an active Chapter 13 bankruptcy.
We have completed more than 15 months of required Chapter 13 payments, and the payments have been made as required. We have documentation from both our bankruptcy attorney and Trustee confirming that the bankruptcy is in good standing.
We also have written approval to incur the new mortgage debt.
Recent Credit-Card Late Payments
The main issue we are trying to overcome involves recent late payments reported on revolving credit.
A payment problem occurred after I lost my debit card and had it canceled and replaced. I contacted the credit-card company and provided the replacement debit-card information because the account had been set up for automatic payments.
Unfortunately, the payment continued attempting to process through the canceled debit card instead of the replacement card. We did not realize there was a problem until we were notified that late payments had been reported.
Once we discovered what happened, we immediately investigated and addressed the situation. Because the debit card had been lost, I also filed a police report documenting the loss.
This was not an intentional failure to pay our obligations, and it occurred while we were actively preparing to purchase our home. I can provide a detailed letter of explanation, the police report, payment history, bank records, and any other supporting documentation your underwriter may require.
We understand that the loan will likely require FHA manual underwriting and that the recent credit history will need to be carefully reviewed.
Why We Are Seeking an Experienced FHA Lender
Because the home is already completed, timing is extremely important.
We are specifically looking for a lender experienced with:
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FHA financing during an active Chapter 13 bankruptcy
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FHA manual underwriting
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Recent revolving-credit late payments and documented extenuating circumstances
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Trustee/court approval to incur new mortgage debt
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Borrowers who otherwise have documented satisfactory Chapter 13 payment histories
We are not asking anyone to overlook FHA requirements. We are simply looking for an experienced FHA lender willing to review the complete circumstances and documentation rather than automatically declining the loan because of the active Chapter 13 or recent credit event.
Would your underwriting team be willing to review our file and determine whether there is a path to FHA approval?
We can provide the Chapter 13 payment history, Trustee and attorney documentation, authorization to incur new debt, credit reports, letters of explanation, police report, purchase contract, builder documentation, and any additional information needed for an initial review.
Thank you for your time and consideration.
One thing I would not do is send the original version with both the death-in-the-family explanation and the debit-card/autopay explanation attached to the same 60-day late. An underwriter will notice that immediately, and inconsistent explanations can cause more trouble than the late payment itself.
Also, based strictly on FHA’s published manual-underwriting language, one isolated 60-day revolving late does not automatically equal an FHA prohibition. The lender still has to evaluate the overall credit pattern and, where necessary, document the circumstances surrounding the delinquency. (HUD) The harder question may be individual lender overlays, which can be more restrictive than FHA itself.
Mandy, please advise on the above and make changes. We will discuss with Ryon and put our heads together. Johnathon and Michelle, I need you to call me to call the credit card company on a three-way call and let me see if I can get into mega-bullshitter mode and see if we can get your late payments removed, which is a 1% chance. Make sure you attach the police report and all supporting documents. I want Ryon to thoroughly review the credit report and check with the underwriter who did an analysis of my other client, Belinda Rose, where she had a 30-day late payment on a bankruptcy trustee payment I think take a peek at this file. We have everything here: Contract, Appraisal, conditions, DNAs, Trustee approval letter, etc. Important note: due to the recent credit card payment, scores may have dropped below 580. Mr. and Mrs. Harding have the 10% down payment and reserves so we can underwrite is a sub-580 score borrowers, and I will help them boost their scores up to over 580. I know how I can do that and should be updated in three days. I will dispute the derogatory credit card late payments and the credit scores should go up to over 580. I know credit disputes are not allowed on FHA loans. However, this applies to approve/eligible AUS findings. If you downgrade to manual underwriting, credit disputes are allowed and do not need to be removed. When you dispute a derogatory credit tradeline, the algorithm on all three credit bureaus discounts the derogatory credit scoring system, as if it does not exist during the dispute. Therefore, the late credit card credit scoring system will treat it like it does not exist which turns out that huge credit score jump. If the dispute is retracted, the credit scoring system will put the negative late payment factor back in the credit scoring system; therefore, credit scores will drop. Mandy and I will make sure Village Capital allows where theire is no BS overlays. Thanks.
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