Writing a Strong Bankruptcy Explanation Letter (Free Sample)

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A bankruptcy explanation letter does not have to be particularly long or detailed. In fact, it is preferable to keep things precise and to the point. 

Whoever ends up reading the letter does not necessarily need a minute-by-minute account of what happened.

Stick To Big Picture Events

Stick to big-picture events like the loss of your job or a medical emergency that resulted in your need to declare bankruptcyAbove all, keep in mind that this is a formal business letter.

It is best to use proper formatting and to compose the letter on a computer so that it can be printed on good-quality paper. Alternatively, you may be asked to email your letter. 

Formal Business Letter

Send it as an attachment or stick to proper letter formatting in the email that you send. Check for errors in spelling, grammar and punctuation before sending the letter.

Here is a straightforward example of a bankruptcy explanation letter:

Sample Bankruptcy Explanation Letter

Monty Gibson
1256 Richie Drive
San Jose, CA 95128

May 03, 2022

Norman Whitman
ABC Mortgage Company
1712 Mortgage Avenue
Oakland, CA 94602

RE: Bankruptcy Explanation Letter

Dear Mr. Whitman:

I am writing to explain the circumstances of my [Chapter 7 or Chapter 13] bankruptcy filing from 2020. At the time, my wife had just been diagnosed with kidney cancer.

She had been laid off from work five months previously, which meant that our financial situation was already precarious.

Mine was the only income in the household. I was just barely keeping up with the usual bills after the loss of my wife’s income.

When she became ill, our medical expenses skyrocketed. Her need for surgery and ongoing medication were critical, but our medical insurance was not sufficient to cover all of the expenses.

My wife’s surgery was successful, but a long recovery period was required. I did the best that I could to pay as many bills as possible. 

However, it soon became clear that I would be unable to cope. This led to our bankruptcy filing in 2020.

Things have improved since then. I have received annual raises, and my wife has fully recovered from cancer and has been able to go back to work part time.

Our credit history since the bankruptcy is relatively limited, but all of our bill payments since the bankruptcy discharge have been on time.

Thank you for your consideration of my mortgage application. You may reach me at monty@email.com or 555-123-4567 at any time if you have questions.

Very truly yours,

Monty Gibson
List of enclosures (if any)

Frequently Asked Questions (FAQs)

1. What is a bankruptcy explanation letter?

Answer: A bankruptcy explanation letter is a written statement that provides context, explanation and clarification of a bankruptcy filing. It is typically written by the borrower to their lenders, creditors, or potential creditors to help them understand the reasons and circumstances leading up to the bankruptcy.

2. Why is a bankruptcy explanation letter written?

Answer: A bankruptcy explanation letter is written to provide a personal and detailed account of the events and circumstances that led to the bankruptcy filing. 

It is an opportunity for the borrower to offer a clear and concise explanation, show responsibility and accountability for their actions, and potentially improve their credit standing.

3. What should be included in a bankruptcy explanation letter?

Answer: A bankruptcy explanation letter should include: a brief overview of the events leading up to the bankruptcy, an explanation of the reasons for the bankruptcy filing, a description of efforts made to repay debts, a statement of future plans and financial stability, and an apology for the situation.

4. Is a bankruptcy explanation letter mandatory?

Answer: No, a bankruptcy explanation letter is not mandatory. However, it is a good opportunity for the borrower to take responsibility for their actions, provide context and explanation, and potentially improve their credit standing.

5. Can a bankruptcy explanation letter affect credit scores?

Answer: No, a bankruptcy explanation letter itself will not affect the borrower’s credit scores. However, the information provided in the letter may impact the lender or creditor’s decision when considering future credit applications.

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