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Late Payments During and After Chapter 13
Greetings
Recently, my husband and I began the FHA qualification process (through another Broker in Chicago) and were told that because we are 5 months out from our CH13 being discharged, we must be manually underwritten and
The FHA does not allow you to have any collections, even though they are paid, and one has been reported to the police as fraud, since the CH13.
I have since attended an FHA seminar at my employer and learned that this is not true of FHA but rather of a lender overlay and that I should work with someone who follows FHA guidelines and no overlays.
Then I heard about you all from a colleague that you helped her.
We were told our credit, income, DTI are all good, but these collections cannot be there paid or not. Do you work with folks who need to be manually underwritten due to CH13?
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2 Replies
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Gustan Cho Associates is a mortgage brokerage specializing in helping borrowers with unique financial situations, including those who may have experienced bankruptcy, foreclosure, or other credit challenges. Here are some key points about Gustan Cho Associates and how they may be able to assist you:
Key Features of Gustan Cho Associates
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Expertise in FHA Loans: Gustan Cho Associates focuses strongly on FHA loans, which are designed for borrowers with lower credit scores and those who may have had financial difficulties in the past.
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Manual Underwriting: They have a reputation for working with borrowers who require manual underwriting, which can benefit those with a recent Chapter 13 bankruptcy discharge. They understand the complexities involved and can help navigate the process.
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No Overlays: Gustan Cho Associates is known for adhering closely to FHA guidelines without imposing additional lender overlays. This means they may be more flexible in their requirements compared to other lenders.
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Wide Range of Loan Products: Besides FHA loans, they offer various loan products, including VA loans, conventional loans, and non-QM (Qualified Mortgage) loans, which can cater to a broad spectrum of borrowing needs.
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Strong Online Presence: They provide resources and information on their website, making it easier for potential borrowers to understand the loan process and find answers to common questions.
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Positive Reviews: Many clients have shared positive experiences working with Gustan Cho Associates, particularly regarding their customer service and ability to assist borrowers with challenging financial histories.
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If you consider reaching out to Gustan Cho Associates, it may be a good fit given their specialization in FHA loans and manual underwriting. I’d appreciate it if you could talk about your specific situation with them and see how they can help you in the qualification process. Ask about their policies and how they can help you navigate any challenges related to your Chapter 13 discharge and collections. Good luck!
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Hi there! Thanks for getting in touch and telling me about what’s going on with your loan application. From what you say, it sounds like you’ve read up on things, and you’re spot-on that the rule about having zero collections- even old ones- is more of a lender’s add-on than a hard-and-fast FHA rule. Let me walk you through the latest FHA info and share what I usually see in cases like yours.
FHA Guidelines on Collections and Chapter 13 Manual Underwriting
HUD’s FHA handbook, HUD 4000.1, clarifies that paid or unpaid collections, before or after a Chapter 13 bankruptcy, will not immediately remove you from the FHA loan process.
Here are the basics:
Collections:
You usually don’t have to clear old collections or charge-offs to get an FHA loan. The lender can ignore them if they add up to less than $2,000. Once the total climbs above that, the lender will estimate a monthly payment of about 5 percent and factor it into your debt-to-income DTI ratio, unless you show a different plan or prove the account is already paid. A paid collection hits your score much less, and any collection that turns out to be fraud, as long as you show a police report, may be taken out of the equation if you fight it the right way.
Chapter 13 Bankruptcy
While a Chapter 13 plan is running, the FHA will still look at your file to see if you’ve made 12 straight, on-time payments to the trustee and if your bankruptcy trustee or court gives the green light for a new mortgage.
Because you are now five months past your Chapter 13 discharge, you can apply immediately and do not have to sit on your hands for a waiting period. Your mortgage will still need manual underwriting until the two-year mark arrives. That means a real person, not a robot, will review your bills, payment history, and basic numbers like your debt-to-income ratio. The underwriter will also look for good compensating factors, such as extra savings or a steady job.
You nailed it during the seminar:
A problem with open collection accounts often comes from a lender overlay, not HUD’s rules. Lenders play it safe and add layers, like ordering all collections paid off first or asking for a higher credit score than HUD sets. The good news is that those extras vary widely from one lender to another.
Working with a Chicago Broker Who Avoids Overlays
I noticed you’re already in touch with a Chicago broker, but heard about us from a friend. I’d love to explain how a no-overlay shop like Gustan Cho Associates could still be useful to you. With that in mind, here’s a quick breakdown of what we can do based on your story:
Manual Underwriting Muscle
We focus on FHA loans for borrowers in Chapter 13 or just discharged, especially those needing manual reviews. More than 75% of our clients first came to us because other lenders added extra hurdles. We stick to HUD’s bare-minimum rules, so unpaid or even settled collections usually don’t sink the file.
Taming Collections
If any collection came from fraud and you filed a police report, send us that proof, and we may be able to dismiss it. Review your other collections, see how they show on your DTI, and treat them according to FHA, not random broker rules.
Chicago Know-How
Our team lives and works in Chicago. That local touch helps us navigate zoning quirks, community programs, and the city’s ever-changing paperwork, so you waste less time. Plus, we track loan limits: For 2025, Cook County nops $1,209,750 for single-family FHA homes in high-cost areas.
This lets you shop in nicer neighborhoods without stretching your budget too thin. If you like, we can put you in touch with a local loan officer who knows the Chicago scene inside and out, so the whole thing moves faster.
Next Steps for You and Your Husband
Your credit, income, and DTI look solid, and because you’re just five months past discharge, a good lender will probably say yes. Here’s how to make that happen.
Contact a No-Overlay Lender
Call a broker like Gustan Cho Associates, because they don’t add extra rules on top of the standard FHA ones. The main line is 800-900-8569, or shoot a quick email to alex@gustancho.com for a free chat. They work seven days a week, evenings and holidays, so you won’t be left waiting.
Gather Documentation
Get these items ready for manual underwriting:
- A full 12-month record showing every Chapter 13 trustee payment was on time (or proof that the plan is discharged).
- The bankruptcy court or trustee letter saying everything is settled (this is only needed if you are still in repayment, but since you are discharged, it can be skipped).
- Evidence of the fake collection, like a police report and copies of dispute letters.
- Gather Income Docs: You’ll need proof of income, pay stubs, tax returns, recent bank statements, and enough reserve cash to cover one month of PITI for each 1-0-unit FHA loan you want.
- Explain Collections: Write a brief letter clarifying every collection remark on your report, especially those you know of for fraud.
- If you filed a police report, attach that copy. FHA staff often ignore old collections that include solid context.
- Verify Rent History:
- Request a rent verification form showing on-time payments for the past twelve months to pass manual underwriting.
- Lenders like Gustan Cho Associates may skip this if your old place was rent-free and you have money saved for your down payment.
- Confirm DTI and Credit: Assuming your broker is correct, double-check that your debt-to-income ratio stays below 43 or climbs to 50 only when strong reserves or steady payback are available.
- A score of 580 lets you put down 3.5 percent, while a score below 580 raises the down payment to 10 percent.
Why Work with a No-Overlay Broker?
Your colleague’s lunch-line conversation matches what you learned at the seminar: a broker who sticks to plain HUD rules, no overlays, keeps the path to FHA loans clear and predictable for every borrower.
Gustan Cho Associates is a name borrowers trust when they come out of Chapter 13, deal with old collections, or need a second glance. Their team knows Chicago inside and out and understands how FHA guidelines can bend for your story, so your fraudulent collection won’t sink the whole application.
Addressing Your Specific Concerns
- Collections and Fraud: Claim the fake collection with the credit bureaus while leaning on your police report.
- FHA can overlook many unpaid collections, so those shouldn’t trip you up, even if your current broker says otherwise.
- Manual Underwriting: Our staff lives in the manual-underwriting space and can spotlight your steady job, on-time bills, and down payment, turning a complex Chapter 13 tale into a clear get-approved story.
Chicago Broker: Want a local touch? Gustan Cho Associates is just blocks from the 55 expressway in Oakbrook Terrace, holds every Illinois license you need, and works the Chicagoland market daily.
Your finances look good, and the pesky collection is more of a lender’s wiggle than an FHA hard line, so you are in a great spot to move forward with that FHA loan.
Moving to a broker with no overlays, like Gustan Cho Associates, could clear up your problem and speed up your approval. Could you call them, walk them through your situation, and see what they say about your eligibility? If you want, you can also share your credit score range, debt-to-income ratio, and any other numbers, and I’ll give you advice that fits. I can even help write a short letter explaining the collections on your record.
Tell me which option sounds good, or ask anything else about the process or other brokers in the Chicago area!!!
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