VA Chapter 13 Bankruptcy Buy-Out Cash-Out Refinance

This article will discuss the buy-out cash-out refinance option for VA Chapter 13 Bankruptcy. A VA Chapter 13 Bankruptcy buy-out can be accomplished using a cash-out refinance on VA home loans while under a Chapter 13 Bankruptcy repayment plan. The widespread financial hardship caused by the coronavirus pandemic outbreak in February 2020 has significantly affected many Americans.

The coronavirus outbreak severely impacted the U.S. economy. The situation was exacerbated by the liberal media and left-wing politicians, who created panic and politicized the COVID-19 outbreak.

Fear-mongering became prevalent among many state governors and politicians. Corruption increased at various government levels, including city, county, state, and federal. Several states received orders to close. The professionals at Gustan Cho Associates specialize in helping individuals who own homes with VA Chapter 13 Bankruptcy buy-outs through cash-out refinance while on a Chapter 13 repayment plan.

VA Chapter 13 Bankruptcy Buy-Out Cash-Out Refinance

Keeping track of a VA Chapter 13 bankruptcy buy-out can be tough—especially if you’re considering a cash-out refinance. Veterans and active-duty military often face special money issues. Knowing how to use VA loan perks inside bankruptcy can lighten that load. This complete guide breaks down a VA Chapter 13 buy-out with a cash-out refinance so you can make smart choices without the stress.

What Is a VA Chapter 13 Bankruptcy Buy-Out?

A VA Chapter 13 bankruptcy buy-out lets you pay off or reduce the Chapter 13 repayment plan using a VA loan, usually with a cash-out refinance. Chapter 13 bankruptcy reorganizes debts, creating a payment plan that usually lasts three to five years. Veterans can tap a VA cash-out refinance to gather the funds needed to settle this plan, allowing bankruptcy to close sooner. This move can give you a clean slate and much-needed breathing room.

How Chapter 13 Bankruptcy Works for Veterans

Chapter 13 bankruptcy helps people with steady paychecks manage and repay some debt over time. Veterans applying for this type of bankruptcy need to do a few key things:

Step 1: Work Out a Payment Plan

You’ll prepare a repayment plan with the bankruptcy court. This plan outlines how much money will be paid to each creditor monthly and for how long.

Step 2: Follow Trustee Oversight

A bankruptcy trustee will monitor your plan to make sure each payment goes to the right creditor on time.

Step 3: Keep Your Home and Other Assets

Chapter 13 protection lets you keep your Home, car, and other valuable property while adjusting the debt owed on each.

Step 4: VA Loan and Bankruptcy

Even in Chapter 13, veterans can still use and benefit from VA home loans. A VA loan buy-down can be considered where equity is cashed out and used to pay down the debt.

Why Look at a VA Chapter 13 Buy-Out?

A VA Chapter 13 buy-out can give veterans a quicker way out of bankruptcy. Here’s how a VA cash-out refinance helps:

Pay Off the Plan Early

You can use your Home’s equity to pay off the remaining balance in your Chapter 13 plan, allowing the bankruptcy to close and your credit to improve.

Lower Overall Costs

If the refinance secures a lower interest rate, your monthly mortgage payment could drop, giving you more room in the family budget.

Tap Equity for Other Needs

• Cash from the refinance can also be used to settle other high-interest loans, buy necessary repairs, or create an emergency fund.
• These benefits make using a VA cash-out refinance a smart way for veterans to leave bankruptcy and regain control of their finances faster.

Understanding VA Cash-Out Refinance in Chapter 13 Bankruptcy

A VA cash-out refinance lets veterans turn some of their home equity into cash by replacing their mortgage with a bigger loan. In Chapter 13 bankruptcy, homeowners can use this refinance to pay off their bankruptcy plan in one lump sum and move on.

Eligibility for VA Cash-Out Refinance While in Chapter 13

Here’s what you usually need to refinance your VA loan while still in a Chapter 13 plan:

• Court Approval: The bankruptcy court must authorize the cash-out to ensure it doesn’t disrupt the repayment plan.
• Timely Payments: Lenders generally want 12 regular, on-time payments to the bankruptcy trustee.
• Equity: Your Home needs enough to pay off the buy-out and cover closing costs.
• VA Loan Status: You must still have some VA entitlement and meet credit and income standards.

Partnering with a VA-approved lender who knows bankruptcy rules can save time and trouble.

Benefits of a VA Cash-Out Refinance for Buy-Out

There are good reasons to choose a cash-out refinance for the bankruptcy buy-out:

• No PMI: VA loans are the only loans that do not require private mortgage insurance, meaning lower monthly bills.
• Flexible Credit Requirements: VA loans usually have less stringent credit rules than conventional loans—even when bankruptcy is in motion.
• Competitive Interest Rates: VA loans frequently feature lower interest rates, keeping refinancing expenses low.
• Debt Consolidation: The cash-out amount can settle high-interest debts outside your bankruptcy repayment plan.

Because of these advantages, a VA cash-out refinance is often a smart choice for veterans looking for a quicker financial reset.

Step-by-Step Process for a VA Chapter 13 Bankruptcy Buy-Out, Cash-Out Refinance

A VA Chapter 13 bankruptcy buy-out, carried out via a cash-out refinance, occurs in clear steps. Knowing these in advance helps you prep so you can avoid any holdup.

Step 1—Talk with Your Bankruptcy Lawyer

Before starting the cash-out refinance, talk with your bankruptcy attorney. Their job is to—

• Explain how the loan may affect your current Chapter 13 repayment plan.
• File a motion to the court so judges can green-light the refinance.
• Double-check that the buy-out fits your longer-term financial picture.

Step 2—Choose a VA-Lender Who Knows Bankruptcy

Not every loan officer understands VA policies when you’re inside a bankruptcy plan. Find one that—

• Has a solid focus on VA loans handled in bankruptcy.
• Knows what trustees and court rules want from refinancing.
• Can offer you competitive costs and terms that fit your budget.

Step 3: Check Your Home’s Equity

Before starting a VA cash-out refinance, you need enough equity in your Home.

Here’s how to check:  

• Appraisal: Order a recent appraisal to determine your home’s worth.
• LTV Calculation: Divide your current mortgage balance by your Home’s appraised value to get your loan-to-value (LTV) ratio.
• Make sure it’s below your lender’s max.
• Closing Costs: Don’t forget to include estimated closing costs and lender fees.
• These can often be added to the new loan amount.

Step 4: Fill Out the VA Loan Application

After the bankruptcy court approves, it’s time to apply for the VA loan. Keep these documents handy:

• Proof of Payments: Submit documentation showing you’ve made all Chapter 13 plan payments on time, usually for the past 12 months.
• Income Docs: Provide current pay stubs, recent bank statements, and the last two tax returns.
• Repayment Plan Info: Include a copy of your Chapter 13 plan and the remaining balance to demonstrate your current debt obligation.

Step 5: Close the Buy-Out and Refinance

Once your loan gets the green light, the cash-out portion pays off the Chapter 13 plan in the bankruptcy court. After the court reviews and approves the transaction, depending on the judge’s ruling, you might be able to get an early discharge from bankruptcy.

Important Notes for Veterans Considering a VA Chapter 13 Buy-Out

Using a VA cash-out refinance to pay off a Chapter 13 debt can be a smart move, but it’s essential to understand the whole picture before you proceed.

Financial Implications of a Cash-Out Refinance

Using a cash-out refinance to pay off your Chapter 13 plan can have lasting financial consequences you should know about:

• Increased Mortgage Balance: Your existing mortgage balance will increase, and you may have to extend the repayment period or reset the clock.
• Closing Costs: Even with a VA loan, closing costs can add up.
• The VA funding fee and other closing costs must be paid up front or added to the balance.
• Interest Costs:  A new, potentially low interest rate over a longer period can still result in paying more money in interest over the life of the loan.

Before proceeding, compare these costs to the benefits you may gain, like exiting bankruptcy sooner.

Impact on Credit and Future Borrowing

Though a Chapter 13 stays on your credit report for up to seven years, paying off the plan through a refinance can help you recover sooner:

• Temporary Score Dip: The loan application will likely cause a small, short-term drop in your credit score.
• On-Time Payments: Your credit score will gradually improve if you make regular, on-time payments on the new loan.

Alternatives to a VA Cash-Out Refinance

If a cash-out refinance isn’t a good fit for you, explore these other paths:

• Stick with the Chapter 13 Plan: Completing the repayment plan on schedule can keep your debt under control and prevent you from taking out new, longer-term loans.
• VA Streamline Refinance (IRRRL): If you’re mostly interested in a lower interest rate and aren’t taking cash out, an IRRRL could be a faster, cheaper process.
• Debt Settlement: You can negotiate lower balances directly with creditors.
• VA doesn’t always control this process, so be cautious and informed.

Discuss these options with your attorney and mortgage lender to find the best direction.

Common Challenges and Solutions

Veterans seeking a VA Chapter 13 bankruptcy buy-out and a cash-out refinance can encounter obstacles. Here’s how to tackle them:

• Challenge: Delays in Court Approval

Bankruptcy courts sometimes take time to green-light the refinance.

To speed things up:  

• Collaborate with your attorney to file motions without delay.
• Submit all needed papers to the court and lender right away.
• Challenge: Limited Equity in the Home

If your Home’s equity isn’t enough, think about:  

• Waiting for housing values to rise or your mortgage balance to drop.
• Asking your trustee about a partial buy-out arrangement.

Challenge: Finding a Lender Willing to Proceed  

Some lenders avoid loans tied to bankruptcy. You can get around this by:  

• Looking for VA-approved lenders experienced with bankruptcy.
• Shopping around for different loan offers to secure the best deal.

Why Veterans Should Move Quickly

Interest rates and home prices can change at any moment, making the present a good time to consider a VA Chapter 13 bankruptcy buy-out or cash-out refinance.

Acting now can:  

• Lock in lower rates before they rise higher.
• Use increasing home values to get the most equity out.
• Speed up your path to a firmer financial future.
• Talk to your bankruptcy attorney and VA-approved lender as soon as possible to review your choices and get the ball rolling today.

A VA Chapter 13 bankruptcy buy-out or cash-out refinance offers veterans a powerful way to regain their finances. With a VA loan’s unique advantages, you can pay off your bankruptcy plan, tap into your Home’s equity, and perhaps lower your monthly bills. Completing this process requires careful planning and a nod from the bankruptcy judge. However, getting out of the bankruptcy plan sooner can be worth the effort. Partner with experts to guide you through the paperwork and the timeline, and you’ll be on a quicker path to a brighter, more stable future.

How The COVID-19 Scare Tactic Forced Small Business Owners To Close

Many hard-working American small business owners and employees of small businesses suffered enormous losses when they were forced to file for bankruptcy. The coronavirus outbreak created an economic, social, and political meltdown. One of the hardest-hit industries was the mortgage industry.

Many employees of mortgage companies were forced to be remote. Many brick-and-mortar lenders removed their brick-and-mortar locations and went virtual with Zoom and other technology.

It changed the entire mortgage industry. Most non-QM lenders went out of business. Two non-QM lenders suspended operations until further notice. Major mortgage guideline changes are expected on non-QM loans when they open up. Some changes will be higher credit scores, larger down payments, and lower debt-to-income ratio caps. The coronavirus pandemic has hit government and conventional loans hard.

How The Filing of Bankruptcy Soared Due To COVID-19 Shutdowns By State Government

Many small businesses like restaurants were ordered to close by local, county, and state governments for months. Millions of Americans have filed for bankruptcy due to the government shutdowns and extended coronavirus state shutdown orders by governors. There are two types of bankruptcies: Chapter 7 and Chapter 13 Bankruptcy.

Can I Qualify For a VA Loan After Chapter 7 Bankruptcy?

Homebuyers can qualify for a VA loan after Chapter 7 Bankruptcy after meeting a two-year waiting period requirement from the discharge date of Chapter 7. You need to have been timely on all of your monthly debt payments after the Chapter 7 Bankruptcy discharge date with no late payments. Borrowers should start rebuilding and re-establishing their credit after being discharged from the Chapter 7 Bankruptcy.

How Can I Do VA Chapter 13 Bankruptcy Buy-Out To End Chapter 13 Early?

Mortgage borrowers can qualify for only two loan programs while in Chapter 13 Bankruptcy: FHA and VA loans. Chapter 13 Bankruptcy is a court-approved debt restructuring and repayment plan. The repayment term is three to five years, with a five-year repayment plan being more popular. Consumers who are in debt and do not have the income to pay the debt satisfactorily every month can file for Chapter 13 Bankruptcy protection.

Do you Get Money Back After Chapter 13 Discharge?

In a Chapter 13 bankruptcy, any money not used to pay creditors under your repayment plan might be returned to you after discharge. When you complete the payments according to your court-approved plan over three to five years, the bankruptcy trustee disburses these payments to creditors.

If there are leftover funds after all creditor payments have been made, these surplus funds may be returned to you. Changes in your financial situation during the repayment period can lead to adjustments in your plan, which might impact any potential surplus.

Understanding the financial outcomes post-discharge for veterans considering a VA Chapter 13 Bankruptcy Buy-Out is crucial. After completing your repayment plan and receiving a discharge, you might explore options like VA Home Loans to re-establish your financial footing and possibly buy a home. These loans offer favorable terms and can be a vital tool for veterans looking to regain stability and invest in property post-bankruptcy. Consulting with your bankruptcy attorney and a VA loan specialist can provide tailored advice based on your situation.

How Soon Can You Apply For a VA Loan After Filing For Chapter 13?

Mortgage borrowers can qualify for an FHA or VA loan while in a Chapter 13 Bankruptcy repayment plan. Homebuyers and homeowners can qualify for a VA loan after 12 months of filing Chapter 13 Bankruptcy and making 12 satisfactory, timely monthly payments to the Bankruptcy Trustee. Homebuyers can apply for a home purchase loan on VA loans. Homeowners with equity can do a VA Chapter 13 Bankruptcy buy-out by doing a cash-out refinance with a VA loan.

Will Trustee Sign Off on VA Chapter 13 Bankruptcy Buy-Out?

The bankruptcy trustee must sign off on the mortgage, whether a home purchase, refinance, or a VA Chapter 13 Bankruptcy buy-out with a cash-out refinance. Dale Elenteny, a senior mortgage loan originator at Gustan Cho Associates says the following about VA Chapter 13 Bankruptcy Buy-Out:

A common question from people who filed Chapter 13 during the coronavirus economic turmoil with state shutdowns is how soon can you apply for credit after filing Chapter 13?

Mortgage borrowers can qualify for a home purchase or refinance mortgage loan while in a Chapter 13 repayment plan after 12 months from the filing date and have made 12 months of timely payments.

Can Chapter 13 Be Discharged Early?

Five years is a very long time to be under the jurisdiction of the U.S. Bankruptcy Courts. Your financial freedom is limited while on the Chapter 13 repayment plan. You need permission from the bankruptcy trustee for any major purchase, to buy a car, get a mortgage, and even get a few secured credit cards. One of the frequently asked questions from our clients is: can Chapter 13 be discharged early? The answer is YES.

VA Chapter 13 Bankruptcy Buy-Out Ends Chapter 13 Early

Homeowners with substantial home equity can do a VA Chapter 13 Bankruptcy buy-out through a VA cash-out refinance mortgage. VA loans allow up to a 100% loan-to-value on VA cash-out mortgage loans. With the proceeds, the homeowner can do a VA Chapter 13 Bankruptcy buy-out and get the Chapter 13 Bankruptcy discharged sooner rather than later.

Using Secured Credit Cards To Rebuild Credit During and After Bankruptcy For Mortgage Approval

The team at Gustan Cho Associates has helped thousands of clients get their credit scores to over 700 FICO within 12 months from their discharge date. John Strange, a senior mortgage loan originator at Gustan Cho Associates says the following about VA Chapter 13 Bankruptcy Buy-Out:

Most of our borrowers at Gustan Cho Associates work with us on credit fixes and rebuilds when they get discharged from Chapter 7. There is no cost for us to help our future homebuyers after Bankruptcy.

Most of our borrowers who work with us after their Chapter 7 discharge have credit scores close to 700 or higher than 700 within two years of the discharge date of their Chapter 7.  In the next paragraph, we will cover and discuss qualifying for an FHA loan during and after Chapter 13 Bankruptcy.

The Best Mortgage Lenders For VA Chapter 13 Bankruptcy Buy-Out With No Overlays

Over 95% of the lenders have changed their VA lending guidelines by imposing strict lender overlays. Most lenders now require a 640 credit score or higher. Any VA loans under 680 FICO will most likely be charged discount points. Gustan Cho Associates Mortgage Group is one of the few mortgage lenders that will approve VA loans for borrowers under 620 credit scores. This article will discuss and cover VA Loans Under 620 FICO During the Coronavirus Pandemic Crisis.

Mortgage Rates on VA Loans Under 620 FICO

The coronavirus pandemic has shaken up the mortgage market. Mortgage rates hit a historic low. However, lenders are increasing mortgage rates for borrowers with lower credit scores. Most lenders with no or limited lender overlays have completely changed their credit score requirements. Most lenders have placed lender overlays on credit scores of 640 or higher. VA loans for borrowers under 680 FICO have skyrocketed.

Why Lenders Stopped Originating VA Loans Under 620 FICO

President Donald Trump signed the $2 trillion stimulus bill passed by the Senate and House of Representatives into law last week. Included in the bill was a law that gives unemployed homeowners the option to suspend their mortgage payments for up to 12 months. This is called a mortgage forbearance. So, any unemployed homeowner can contact their mortgage servicer and request a forbearance for up to 12 months. This will not negatively affect the borrower’s credit scores. However, the mortgage servicer still needs to pay interest and principal payments to the investor.

Best Mortgage Lenders For VA Manual Underwriting 

On top of that, the servicer needs to pay property taxes and homeowners insurance for borrowers who have escrows. The stimulus package did not include any relief for nonbank mortgage servicers. Banks such as JP Morgan Chase, Bank of America, Wells Fargo, and other FDIC banks are not seriously affected because they can borrow the principal and interest payments to investors from the Fed. Nonbank servicers cannot borrow from the Federal Reserve Board.

FAQs: VA Chapter 13 Bankruptcy Buy-Out Cash-Out Refinance

• 1. What is a VA Chapter 13 Bankruptcy Buy-Out? A VA Chapter 13 Bankruptcy Buy-Out is a financial strategy that allows individuals to refinance their mortgage through a VA home loan. At the same time, they are under a Chapter 13 Bankruptcy repayment plan. This can help homeowners access cash and potentially discharge their bankruptcy early.
• 2. How does the buy-out cash-out refinance work? The buy-out cash-out refinance involves a new VA home loan to pay off the existing mortgage and access additional funds from the home’s equity. This can be done under the Chapter 13 repayment plan, providing financial relief and the possibility of early discharge from bankruptcy.
• 3. How did the coronavirus pandemic impact VA Chapter 13 Bankruptcy Buy-Outs? The coronavirus pandemic caused widespread financial distress, significantly impacting many Americans, including small business owners and employees. This economic hardship led to increased bankruptcy filings, including those seeking VA Chapter 13 Bankruptcy Buy-Outs to manage their debts and rebuild their financial stability.
• 4. Can I qualify for a VA Home Loan after filing for Chapter 7 Bankruptcy? Homebuyers can qualify for a VA home loan after Chapter 7 Bankruptcy. Still, they must meet a two-year deadline requirement from the discharge date. They also need timely payments on all monthly debts after the discharge with no late payments.
• 5. How can I use a VA Chapter 13 Bankruptcy Buy-Out to end Chapter 13 early? Homeowners with substantial home equity can utilize a VA Chapter 13 Bankruptcy Buy-Out through a VA cash-out refinance mortgage. This allows them to access up to 100% loan-to-value on VA cash-out mortgage loans and use the proceeds to discharge the Chapter 13 Bankruptcy sooner.
• 6. Will the bankruptcy trustee sign off on a VA Chapter 13 Bankruptcy Buy-Out? Yes, the bankruptcy trustee must sign off on the mortgage, whether a home purchase, refinance, or a VA Chapter 13 Bankruptcy Buy-Out with a cash-out refinance. This approval is necessary to proceed with the transaction.
• 7. How soon can I apply for a VA loan after filing for Chapter 13 Bankruptcy? Borrowers seeking VA home loans can become eligible for a Chapter 13 Bankruptcy repayment plan after completing 12 acceptable and punctual monthly payments to the Bankruptcy Trustee. This applies to a home purchase loan and a VA Chapter 13 Bankruptcy Buy-Out through a cash-out refinance.
• 8. Can Chapter 13 Bankruptcy be discharged early? Absolutely, it is possible to achieve early discharge in Chapter 13 Bankruptcy. Individuals who own homes with significant equity can use a VA Chapter 13 Bankruptcy Buy-Out to attain an early discharge, thereby reclaiming financial independence sooner.
• 9. How has the mortgage industry been affected by the coronavirus pandemic? The coronavirus pandemic has significantly affected the mortgage industry, leading to changes such as remote working for employees, the closure of brick-and-mortar locations, and an increase in mortgage guideline requirements. Many non-QM lenders quit business or suspended operations, resulting in stricter credit scores and loan-to-value requirements.
• 10. How can I rebuild my credit during and after bankruptcy for mortgage approval? Rebuilding credit can be achieved by using secured credit cards and maintaining timely payments on all debts. Working with mortgage professionals, like those at Gustan Cho Associates, can help improve credit scores to over 700 FICO within 12 months from the discharge date, positioning borrowers for future mortgage approval.

If you have any questions about VA Chapter 13 Bankruptcy Buy-Out Cash-Out Refinance or you need to qualify for VA home loans with a lender with no overlays, please contact us at 800-900-8569. Text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.

This blog about VA Chapter 13 Bankruptcy Buy-Out Cash-Out Refinance was updated on September 5, 2025.