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Mortgage With Bad Credit Case Scenario
Letter of Explanation: Medical Hardship & Bankruptcy Dismissal
​Date: October 19, 2026
To: Mortgage Loan Underwriting Department
From: Potential Borrowers
Property Address: Beech Island, SC 29842
​Subject: Statement of Extenuating Medical Circumstances & Financial History
​To Whom It May Concern,
​We are submitting this letter to explain the background behind our Chapter 13 bankruptcy dismissal, our current household income, and the reporting status of our mortgage.
​1. Consecutive Emergency Medical Hardships & Bankruptcy Dismissal
In 2022, we purchased our home at 302 Dicks Drive, contributing a $90,000.00 down payment. Following employment changes within the Department of Corrections system, we experienced temporary delays in housing payments and entered Chapter 13 bankruptcy protection.
​Our ability to fulfill the Chapter 13 plan was interrupted by two severe, life-threatening medical emergencies in late 2025:
​October 2025 (Severe Kidney Infection & Septic Shock): Dianne suffered a severe, life-threatening kidney infection resulting in septic shock and high fever. Emergency medical transport brought her to the hospital, where doctors discovered large kidney stones blocking urine flow. Surgeons performed an emergency procedure placing a nephrostomy catheter directly into her back to drain the infection. Following discharge, she underwent outpatient laser surgery with her urologist, Dr. Mack, to break up the stones.
​December 2025 (Heart Attack & Open-Heart Surgery): Just one week and one day after returning to work, Dianne suffered a heart attack on December 15, 2025. She was transported by ambulance to the hospital, remaining inpatient through December 26, 2025. During this admission, on December 22, 2025, she underwent major open-heart surgery.
​2. Exhaustion of Leave & Community/Foundation Support
During this extended medical crisis:
​Dianne completely exhausted all earned annual leave and sick leave while unable to work.
​To manage essential living costs while waiting on disability and retirement claims, we sought help through available support systems:
​Correctional Officers Foundation: Provided charitable financial assistance toward core household expenses.
​Coworker Support: Dianne’s workplace organized a collection drive to help cover immediate living expenses.
​Community Utility & Food Assistance: We utilized local community outreach programs for help covering basic electric, water, and food expenses.
​Despite taking these proactive steps and exhausting personal resources, the temporary loss of active regular income made it impossible to maintain the Chapter 13 plan payments. This direct medical hardship resulted in the dismissal of our Chapter 13 plan on April 2, 2026.
​(Note: Formal medical record requests have been submitted to Dr. Mack’s third-party record processor and will be forwarded upon receipt.)
​3. Servicing Status of Current Mortgage
Our current mortgage is a private investor portfolio loan serviced through Chris Laterrez at Home Spring Mortgage. As a portfolio loan, the servicer does not report monthly activity to national credit bureaus. Verified payment history can be documented directly through bank records and servicer verification upon request.
​4. Current Household Income & Financial Stability
Our household finances have fully stabilized with permanent, ongoing income sources:
​Raul Gutierrez.: $5,000.00 / month (Utility Worker, City of Lexington County)
​Dianne Gutierrez
​Social Security Retirement: $1,349.00 / month
​Police Officers Retirement System Pension: $940.62 / month
​Long-Term Disability (The Standard / State of SC): $800.00 / month
​Total Household Income: $8,089.62 / month
​With predictable retirement and disability benefits in place alongside Todd’s full-time employment income, we are fully capable of maintaining all future mortgage and living obligations without disruption.
​Sincerely,
​Raul and Dianne Gutierrez
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This discussion was modified 14 hours, 19 minutes ago by
Gustan Cho.
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This discussion was modified 14 hours, 19 minutes ago by
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1 Reply
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Mortgage With Bad Credit After Chapter 13 Bankruptcy Dismissal Due to Medical Hardship
Thank you for sharing your detailed overview and heartfelt explanation letter. We truly appreciate your openness about the serious medical emergencies your family has endured and the financial hurdles that followed.
A Chapter 13 bankruptcy dismissal does not automatically prevent you from getting a mortgage. The difference between dismissal and discharge greatly affects the mortgage options you may qualify for.
Your situation shows encouraging signs, yet there are still a few important issues we need to address before we can determine your mortgage eligibility.
Can You Qualify for a Mortgage After a Chapter 13 Bankruptcy Has Been Dismissed?
Your Chapter 13 was dismissed on April 2, 2026, due to serious medical emergencies that reduced your household income.
As of October 21, 2026, just over six and a half months have passed since your dismissal. For conventional mortgages following Fannie Mae rules, the usual waiting time after a Chapter 13 dismissal is four years, but it can be shortened to two years if you provide enough proof of special circumstances.
If you qualify for the extenuating circumstances exception, you could be eligible for Fannie Mae as early as April 2, 2028, provided you meet all other requirements.
FHA loans could open up more possibilities for you. FHA might let borrowers qualify while their Chapter 13 plan is still active if they have made 12 months of on-time payments and have court approval. Cases where Chapter 13 is discharged are handled differently. Because your bankruptcy was dismissed rather than discharged, we need to review your court records, payment history, any remaining debt, and FHA rules to determine whether an FHA refinance or purchase loan is possible, especially if you still have late mortgage payments.
Your Medical Hardships May Support an Extenuating-Circumstances Explanation
The circumstances you described are significant and deserve a careful, thorough review by underwriting. During that time, you faced several medical crises, including a long hospital stay, an emergency surgery, and open-heart surgery. These medical events exhausted your employment leave, interrupted your household income, and prevented you from keeping up with Chapter 13 payments. Mortgage reviewers can take into account documented medical emergencies and unexpected income loss when evaluating bad credit history to clearly demonstrate the connection between your medical events, lost income, and the bankruptcy dismissal.
We suggest gathering your hospital discharge papers, doctor’s notes, records of unpaid medical leave, disability benefit approval letters, and the bankruptcy dismissal notice.
You don’t need to share private medical details publicly. Please send your medical records privately through a secure loan process. An important question is whether your mortgage or Chapter 13 payments were late before the medical emergencies. Your explanation should clearly describe the financial problems that caused the bankruptcy and how the medical hardship affected your payment plan.
You mentioned your current mortgage is with a private investor portfolio lender who does not report monthly payments to major credit agencies. This situation does not have to be a roadblock.
Mortgage lenders can use other documents to check your payment history if your mortgage doesn’t show up on your credit report. We suggest requesting your complete mortgage payment history directly from your current loan servicer.
Ideally, the statement should show your mortgage account number, monthly payment, payment dates, remaining balance, and payment amounts. Crucially, we need to know if you have had any 30-, 60-, or 90-day mortgage delinquencies in the past 12 months. Not reporting to the credit bureaus is different from a mortgage with no late payments. The underwriter will review your real payment history, even if the account does not appear on your credit report. If you have kept up with your mortgage payments since your financial recovery, this will be a strong point in your favor. If there are late payments, we need to know when they happened, if they were caused by your medical hardship, and how they might affect your chances for the suggested loan program.
Your Current Income Could Be a Positive Factor
Your letter lists Social Security retirement income of $1,349 per month, pension income of $940.62 per month, and long-term disability income of $800 per month. Combined, these three sources total $3,089.62 per month. Your letter states your total household income is $8,089.62 per month, which suggests your husband’s gross employment income is about $5,000 per month. Social Security retirement benefits and eligible pension income usually count as qualifying income if you have the right documents.me if they are properly documented.
Long-term disability income may also count, depending on the program’s rules and if you can prove it will continue. Your husband’s employment income must be verified with standard employment and income documents.
Depending on the mortgage program, some qualifying nontaxable income might also be counted at a higher amount through gross-up calculations. We cannot determine the qualifying income from the household total listed in your letter.
Your Existing Home Equity May Also Be Important
You did make a large deposit when you bought the property in 2022. That upfront investment has likely helped you build valuable equity in your home. If you want to refinance, you will need to give your property’s estimated market value, current mortgage balance, and how much you want to refinance. For cash-out refinancing, extra rules may apply based on payment history, loan-to-value ratio, bankruptcy history, and credit qualifications. Depending on your goals, a portfolio or non-QM lender could be an option if traditional agency financing is not available. These loans often have different credit rules and may have higher rates, fees, or equity requirements.
Recommend Doing Next
Before recommending a specific mortgage program, we need to review your complete financial situation. The most important details are your credit scores, current mortgage payment history, bankruptcy documents (if any), current household income, and estimated home equity.
We also need to determine whether any Chapter 13 debts remain unpaid and whether you are making acceptable payments on them.
Your letter regarding your medical hardship is a valuable first step, but it cannot replace the documentation required for mortgage underwriting. The strongest mortgage application will clearly explain why the financial hardship happened, how it was fixed, and why you can now afford a new mortgage payment.
Questions That Will Help Us Determine Your Mortgage Options<div>
We Have Seven Questions to Help Us Review Your Case:
- Are you looking to refinance your existing property in SC, obtain cash out, or purchase another property?
- What is your current mortgage balance, monthly payment, and estimated property value?
- Have you had any mortgage payments that were 30 days or more late in the past 12 months?
- What are your current approximate middle mortgage credit scores?
- Did your Chapter 13 repayment plan become current before the October and December 2025 medical emergencies?
- Can you confirm that your husband’s gross monthly employment income is approximately $5,000 and that the total household income is $8,089.62?
- Are there any unpaid debts or collections outstanding from the dismissed Chapter 13?
You do not need to share any private documents or personal information in this public forum.
Final Thoughts: A Medical Hardship Does Not Have to End Your Homeownership Options
Your bankruptcy discharge, past payment problems, and serious medical hardship are all important factors. Still, these do not close the door on your mortgage options. What matters most now is your current financial situation, your ability to repay, any unpaid debts, and the rules of the loan program you pick. At Gustan Cho Associates, we often help clients with complex mortgage situations, including credit problems, bankruptcies, and medical hardships. While we cannot promise approval, your case deserves a careful, complete review—not an automatic denial just because of a bankruptcy discharge.
Please answer the seven questions above so we can provide more specific advice about which financing options may work for you. Underwriting considerations
For your internal review before posting, I want to highlight three points. The borrower’s stated income does not add up unless the husband’s gross employment income is $5,000 per month. Please confirm this before calculating debt-to-income ratios. Also, keep the FHA rules for active Chapter 13 cases separate from those for dismissed cases. The 12-month repayment plan rule does not automatically qualify a borrower for a loan after dismissal. Bankruptcy and credit history must be reviewed according to FHA Handbook 4000.1 and each lender’s requirements. Third, medical hardship may support a special-circumstances review, but it does not waive Fannie Mae’s minimum two-year waiting period after a Chapter 13 dismissal.
I recommend focusing on two key questions: Are the borrowers looking for a rate-and-term refinance, or a cash-out refinance, and is their current mortgage late? The answers will greatly affect which loan programs are available.
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