My husband is a veteran and recently we started talking to lenders about using his VA loan. He was under the impression that his credit didn't matter with a VA loan (obviously, it does). The Big Problem is an amount of $24,000 he has in open collections for medical bills on his credit report. Our loan officer told us that there is no way he could use his VA loan with any open collections accounts of any kind on his credit report. The lender told us that filing bankruptcy would actually make his credit look better, because it is just that bad as is. I gather we will not be able to purchase a home any time soon, but is bankruptcy the best option here? How long until he can use the VA loan after that (provided we do a good job keeping our finacial outlook positive during that time)?

If your income is so low that you qualify for a Chapter 7 bankruptcy, it will be a minimum of 2 years from the date of discharge. During that 2 years, you can not have one blemish appear on your credit report.

If you are forced into the Chapter 13 bankruptcy, you can qualify for the VA loan once you are 1 year into it with no lates on anything during that time.

Paul
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Thank you for responding so quickly to my question. So it sounds like bankruptcy is the best way to go then? Will the bunkruptcy involve my assets and credit as well? Our combined income is around $25,000 annually, would you recomend a chapter 7 or 13?

All of your assets will be considered and it will affect your credit. You will need to speak with a bankruptcy attorney to get all of the details for your specific situation.