Chapter 13 bankruptcy is a type of bankruptcy that allows individuals to propose a repayment plan to pay all or a portion of their debts over three to five years. During this time, you are required to make monthly chapter 13 plan payments to a bankruptcy trustee who then distributes the funds to your creditors on a pro-rata basis.
While in Chapter 13 bankruptcy, refinancing your house can be challenging because you are still under the supervision of the bankruptcy court. Major financial decisions such as the sale or refinance of real property require court approval. Additionally, finding a lender willing to refinance your home while in Chapter 13 is more difficult as it poses a higher risk to the lender due to the ongoing bankruptcy process.
Although difficult it is not impossible to refinance while in Chapter 13. Here are some things to consider:
- Court Approval: Before refinancing, you will need to get approval from the bankruptcy court and provide the court with details about the proposed transaction and demonstrate how the new loan will benefit your financial situation.
- Equity: Refinancing requires having sufficient equity in your home. If your home’s value has decreased or you now owe more on the mortgage than the property’s worth, it may be a lot harder to refinance (negative equity, underwater mortgage, upside down mortgage).
- Credit Score: Your credit score will also play a significant role in getting approved for a refinance. Chapter 13 bankruptcy can impact your credit score, making it harder to qualify for favorable terms.
- Lender’s Criteria: Each lender has its own criteria for refinancing, and some may be more willing to work with borrowers in Chapter 13 than others. You will need to shop around to find a willing and able lender.
A history of on-time post petition mortgage payments will help you.
To get the most accurate and up-to-date information on your specific situation and whether you can refinance your house while in Chapter 13, it’s essential to consult with a qualified bankruptcy attorney who can assess your circumstances and provide personalized advice. They can guide you through the process and help you make informed decisions based on your unique financial situation.