Does a BK have any effect on a VA streamline refinance? This is a question that gets asked by Veterans almost every day. The simple answer is YES! The requirements or guidelines are much different than if you were trying to purchase a home. I might add that it also depends on if the Bankruptcy was a chapter 7 or  chapter 13.

The difference between a BK 7 and 13 is this – Chapter 7 involves a complete liquidation of debts listed in the bankruptcy whereas the Chapter 13 involves debt restructuring by paying a trustee every month who in turns pays the debts listed on the bankruptcy.

Here is what the VA says on a streamline refinance bankruptcy – “Although no underwriting is required, approval of new credit may be required by the trustee in a chapter 13 BK” This is always the case. If a Veteran is paying on a chapter 13 BK they must get special permission from the courts and trustee to refinance their VA loan. Things are different for a Chapter 7. Most lenders will do a streamline refinance just as long as the Chapter 7 bankruptcy is discharged.

Remember though that the rules of late payments and minimum credit scores are still applicable. A Veteran cannot have any 30 day late payments on the mortgage within the last 12 months and must have a credit score of at least 620. If a Chapter 7 has just been discharged chances are the credit score is not going to be 620 and thus making them ineligible for the streamline refinance. Please understand that the credit score requirement IS NOT VA! This is a lender overlay.

If this information has been helpful or you have additional questions please contact me at 1-888-657-2848 ext 222.