Difference Between Chapter 7 and Chapter 13 Bankruptcies. The process you’ll go through to refinance after bankruptcy depends on the type of bankruptcy you’ve filed. Let’s go over the differences between the main types of bankruptcy: Chapter 7 and Chapter Chapter 7: Chapter 7, sometimes called a traditional bankruptcy, discharges your. Wayne Godare, a Chapter 13 trustee from Portland, Oregon, recommends that you also contact and work with a bankruptcy attorney. This is especially important if refinancing is a recent decision, as the trustee will most likely require that you notify all creditors -- and give each one time to respond -- before approving your request. Jan 04, · You can refinance your mortgage during an active Chapter 13 bankruptcy case – but only if you follow the rules. When you file for Chapter 13 bankruptcy, part of the deal is that you are not allowed to take on more debt until the case is over. If you want to take on new debt while your case is active, you need court permission.
Related videosHow soon can you qualify for a mortgage after a Chapter 13 Bankruptcy?
You can refinance your mortgage during an active Chapter 13 bankruptcy case — but only if you follow the rules. When you file for Chapter 13 bankruptcy, part of the deal is that you are not allowed to take on more debt until the case is over. Some places relax the rules a bit. For example, for cases filed in the U. You will also need to take the time to talk with someone in the office about the situation and circumstances surrounding the refinance. The information required differs based on where you are — the court rules in Los Angeles differ, for example, from those in Brooklyn cases.
The FHA and VA consider your loan application as early as one day after discharge and even during the bankruptcy, as long as you have made your plan repayments on time for at least 12 months. If you're still in Chapter 13, you'll need the bankruptcy court's consent for a new loan. Chapter 13 can knock points or more off your credit score, and the bankruptcy stays on your report for seven years after the discharge.
Since FHA lenders look for a minimum FICO score of — the comparable figure for conventional lenders is or higher — your first priority must be to re-establish credit. Paying your bills on time, using your credit cards wisely, and paying your loan balances in full each month should start to raise your credit score.
Most people who are responsible with their debt qualify for home loans in as little as two to four years after the bankruptcy is discharged. As well as meeting credit score requirements, you'll need to have a debt-to-income ratio within the program's guidelines. The guidelines for this program are rather simple, leaving it as an option for many people that filed for bankruptcy. The basic requirements for the FHA loan include:. These are the general FHA guidelines. If you know that your debt ratios are very high or that your credit score is below , you can also try subprime lenders for financing.
The rules in Colorado, for example, are much different than the rules in California. Your bankruptcy attorney can help you determine what guidelines you must meet in order to qualify for a refinance while still in the bankruptcy.
Typically, you need to provide the trustee with the necessary paperwork from your intended lender that shows the rate, term and cost of the new loan to help the trustee to determine if the new debt fits within your budget. Once you have approval from your trustee to obtain a loan after a Chapter 13 bankruptcy, the rest of the process works much the same as any other loan.
The underwriter finishes up ensuring that you qualify for the loan and then sets you up for a closing. At the closing, you sign the loan documents and the title agent pays off your current mortgage. You now have a new mortgage with a new payment to help you turn over a brand new leaf after filing for bankruptcy. You should know that there are many stipulations you may have to meet in order to qualify for the refinance after a Chapter 13 Bankruptcy.
Not every lender will approve you for the loan and not every trustee allows new financing. In order to better your chances, try to make your bankruptcy installment payments on time every month to give the trustee the faith in you that he needs to allow new financing. It also helps if the new financing has a benefit, such as saving you money every month or saving you several thousands of dollars in interest in the long run.
The more evidence you have for the trustee and the underwriter that a refinance will help you out, the more likely it is that you will secure an approval. If one lender turns you down, but you have approval from your trustee, keep shopping.
Do not forget about the option to use subprime or alternative lenders as well. They often have more lucrative programs than the FHA has, giving you the opportunity to refinance your mortgage and start saving money as soon as 12 months after filing for bankruptcy. If you bought your home with an FHA loan, you may be able to refinance without verifying your qualifying information all over again.