Tips for Chapter 13 Refinancing

Can I refinance my mortgage while in Chapter 13 bankruptcy?

I am presently under Chapter 13 for some financial situations that do not include my mortgage. I am behind on my mortgage and I am struggling to keep caught up. I want to refinance my home and get a cheaper interest rate, I am now presently at 6%. Is there any way I can get refinanced while under Chapter 13.

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Bills.com Team
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By Bills.com Team
November 1, 2011

Highlights


  • Refinancing requires the approval of your bankruptcy trustee.
  • A one year period of timely payments on your Chapter 13 is required.
  • Look into an FHA loan as an option for refinancing.

The short answer is yes. Chapter 13 mortgage refinancing is attainable, but difficult to achieve. To successfully refinance a Chapter 13 loan you must:

  • Plan carefully
  • Qualify with bad credit
  • Find a lender who specializes in refinancing Chapter 13 loans.

Detailed Preparation

As you are well aware, the bankruptcy process involves providing the court with many details regarding your overall financial position. This is also true for your Chapter 13 mortgage refinance. You must work carefully with your bankruptcy lawyer, the lender, the court, and the court trustee. You will be required to prepare an updated budget that shows how you can make the payments. This will be presented to the court and the court trustee for approval. Your lawyer will be able to help with filing the motion. Remember that you will have to cover expenses from funds outside of your plan.

Limited Options

The type of lenders available for a refinancing a Chapter 13 mortgage is limited. There are lenders who specialize in bankruptcy lending. You are likely to find that an FHA loan will offer the best possible solution.

FHA loans require that you have made the payments to the bankruptcy trustee as agreed for at least a one year period and you must demonstrate job stability. Many lenders require a minimum of two years. Another limiting factor is the amount of equity in your home.

Bad Credit

Bad credit is also a very limiting factor in Chapter 13 mortgage refinancing. In general, borrowers who have filed for bankruptcy have suffered from a reduced credit score. The FHA published guidelines in September 2010 (PDF) which allow for financing up to 90% for those with credit scores between 500 and 579.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

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