Sample "Letter of Explanation for Bankruptcy"

What Is a Letter of Explanation for Bankruptcy?

A Letter of Explanation for Bankruptcy is a statement prepared by a borrower and sent to the potential lender to clarify why they had to file for bankruptcy in the past. When you apply for a loan or want to obtain a credit card, your lender will check your creditworthiness, and if you were insolvent before, they may ask you to provide an explanation of the situation - or you may submit this document in advance before any questions are even asked. Whether you suffered a business failure or simply could not control your debts and resorted to bankruptcy, you need to show the lender it is all in the past and you have a stable source of income.

Download a Letter of Explanation for Bankruptcy template through the link below.

When drafting a Letter of Explanation for Bankruptcy, you need to state the reason you are submitting this explanation, record the type of bankruptcy you filed for, the timeline of the bankruptcy proceedings, and a brief description of the circumstances that led to the bankruptcy. You need to be convincing enough so that the representative of the financial institution understands the bankruptcy was a long time ago and you have rectified all financial issues that have caused it. Indicate how your current financial situation differs and offer proof - attach pay stubs, tax returns, bank and financial statements (from the bankruptcy timeline and most recent) to show you have been living within your financial means. Support the letter by enclosing documentation that confirms your hardships are behind you - for instance, if you were declared insolvent because you were fired or ill, attach documents that prove your successful employment and a clean bill of health.


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Sample Letter of Explanation for Bankruptcy
From: John Doe
123 Hollywood Blvd
Lost Angeles, California 90020
[Date]
To: Paul Smith
XYZ Mortgage Company
4545 Mortgage Company Lane
San Francisco, California 94016
Re: Bankruptcy Explanation Letter
Dear Mr. Smith,
I am writing to explain the reasons for my Chapter 7 bankruptcy filing from 2017. At the
time, my brother had just been diagnosed with liver cancer. He had already been laid off
from his work for five months when he learned of his diagnosis, which meant that our
financial situation was already in a dangerous position.
The only income in the house was my own and I was just barely surviving with the usual
bills after helping with my brother’s treatment. When his condition became worse, the
medical expenses escalated exponentially. His need for continued treatment and
medication was extremely serious, but the medical insurance he was on was not enough
to pay for all of the expenses. I have attached copies of all of the medical bills I needed to
pay to this letter.
The treatment my brother had was thankfully a success, but he needed a long recovery
period to be fully healthy again. I did the best that I could paying for as many bills as
possible but when it became clear that I would be unable to cope I decided that the best
course of action would be to file for bankruptcy. This led to me filing bankruptcy in 2018.
©
TEMPLATEROLLER.COM
Sample Letter of Explanation for Bankruptcy
From: John Doe
123 Hollywood Blvd
Lost Angeles, California 90020
[Date]
To: Paul Smith
XYZ Mortgage Company
4545 Mortgage Company Lane
San Francisco, California 94016
Re: Bankruptcy Explanation Letter
Dear Mr. Smith,
I am writing to explain the reasons for my Chapter 7 bankruptcy filing from 2017. At the
time, my brother had just been diagnosed with liver cancer. He had already been laid off
from his work for five months when he learned of his diagnosis, which meant that our
financial situation was already in a dangerous position.
The only income in the house was my own and I was just barely surviving with the usual
bills after helping with my brother’s treatment. When his condition became worse, the
medical expenses escalated exponentially. His need for continued treatment and
medication was extremely serious, but the medical insurance he was on was not enough
to pay for all of the expenses. I have attached copies of all of the medical bills I needed to
pay to this letter.
The treatment my brother had was thankfully a success, but he needed a long recovery
period to be fully healthy again. I did the best that I could paying for as many bills as
possible but when it became clear that I would be unable to cope I decided that the best
course of action would be to file for bankruptcy. This led to me filing bankruptcy in 2018.
©
TEMPLATEROLLER.COM
I have also added a copy of my brother’s hospital discharge papers, showing both the
diagnosis and the ongoing care requirements.
Since then my financial situation has improved greatly. I have found a new job with a
higher paid salary than my previous place of work. My brother has fully recovered from
his illness and has been able to move out and get back to work full time. My credit
history since I filed for bankruptcy is limited compared to how it previously was, but all
of my bill payments since my bankruptcy discharge have been conducted in a timely
manner.
Thank you for considering my mortgage application. If more information is required
please contact me at +1 213-456-1234, or by email at johndoe@email.com.
Sincerely,
John Doe
[Signature]
©
TEMPLATEROLLER.COM
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