| Yes, there is an exception to the two year rule for a Chapter 7 Bankruptcy (and three year rule for a Foreclosure). "An elapsed period of less than two years, but not less than twelve months, may be acceptable if the borrower can show that the bankruptcy was caused by EXTENUATING circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner. Additionally, the lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur."
This is a very high hurdle to overcome, requiring a commited borrower willing to provide extensive documentation, an experienced loan officer willing to devote the time to assemble it in a coherent and persuasive manner, and an underwriter who is not afraid to make the tough decisions. (Underwriters get report cards from FHA. Too mant F's can result in an uderwriter losing their "Direct Endorsement" priviledges.). A borrower who had good credit prior to a catastrophic event (such as a debilitating injury, or illness, shutdown of their long term employer in a small town without alternative employers, etc) might be a good candidate for such an exeption. Situation such as a divorce or merely being overextended probably would not qualify. I hope that this answers your question. | 
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