Refinancing During Chapter 13 Bankruptcy Repayment Plan

This BLOG On Refinancing During Chapter 13 Bankruptcy Repayment Plan Was Written By Chicago Bankruptcy Attorney Chad M. Hayward 

It is possible to do a Refinancing During Chapter 13 Bankruptcy Repayment Plan while your mortgage while in an active Chapter 13 bankruptcy. However, there is no law governing this and it is entirely up to the individual(s) to find a willing lender. Under HUD Guidelines, a borrower is eligible to qualify for a FHA Loan one year into a Chapter 13 Bankruptcy Repayment Period. However, many lender has overlays which means they do not have to honor FHA Guidelines in qualifying for a FHA Loan during a Chapter 13 Bankruptcy. Some lenders will not allow a borrower to qualify for a FHA Loan until two years after a Chapter 13 Bankruptcy discharged date. Generally, lenders want to see one year of timely mortgage payments before considering a refinance. Similarly, lenders often offer loan modifications to individuals while in a Chapter 13 bankruptcy. In some circumstances, filing for relief under the bankruptcy code helps individuals obtain a loan modification due to the decrease in monthly expenses thereby allowing them to meet the lender’s debt to income requirements.

Loan Modifications And Refinancing During Chapter 13 Bankruptcy Repayment Plan

People often get loan modifications while in bankruptcy. As I previously stated, once you file bankruptcy, it usually frees up some of your income and it might make it more feasible to get a loan modification. Sometimes lenders will require court approval before entering into a loan modification. However, at least in the jurisdiction where I practice, this is not necessary and many judges will deny as unnecessary any motion brought to approve a loan modification. However, most judges recognize that lenders want court approval so that they do not run afoul of the automatic stay, and will usually grant such motions.

Can My Mortgage Payment Change While In A Chapter 13 Bankruptcy?

Yes, but only within the terms of your original mortgage. If you had an adjustable rate mortgage when you filed for bankruptcy, then your mortgage rate can change according to the terms of your mortgage. Conversely, if an individual had a fixed rate mortgage before filing for bankruptcy, then their mortgage would be locked in at such rate. The filing of bankruptcy will have no bearing on the terms of your mortgage. When you are in an active Chapter 13 bankruptcy and your mortgage payment changes due to an adjustment in your interest rate or escrow payment, your lender will generally send you a “Notice of Mortgage Payment Change.” This is just a notice of your new payment amount and it will usually explain why there is an adjustment. Keep in mind that even though you may have a fixed interest rate, if your real estate taxes are paid through your mortgage and your taxes increase, this will result in an increased mortgage payments just like it would if you were not in bankruptcy.

Qualification Requirements To Be Eligible For FHA Loan During And After Chapter 13 Bankruptcy

Here are the 2017 FHA Guidelines in qualifying for a FHA Loan During And After Chapter 13 Banrkuptcy

  • FHA Borrowers can qualify for a FHA Loan during a FHA Chapter 13 Bankruptcy one year into the Chapter 13 Bankruptcy repayment plan.
  • 12 months of payments need to have been made to all of their creditors.
  • No late payments to any creditors from the time they started their repayment plan.
  • Verification of Rent is required.
  • Minimum of 580 FICO credit scores.
  • All Chapter 13 Bankruptcy during and/or after mortgage files are manual underwriting.
  • There is no waiting period to qualify for a FHA after a discharged date of a Chapter 13 Bankruptcy.
  • Underwriters will want to see that all payments to creditors have been made timely during their Chapter 13 Bankruptcy Repayment Period.
The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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