Navigating your financial recovery during a Chapter 13 bankruptcy in Georgia can be daunting, especially if you’re looking to refinance your home. Thankfully, refinancing isn’t just a possibility; it’s achievable with the right guidance and understanding of the process. If you meet the right criteria, you can refinance to get a lower rate or to pull cash out to pay off debts or even your entire bankruptcy. We will explain more below.
What is Chapter 13 Bankruptcy in Georgia?
If you’re exploring this blog, you likely know that Chapter 13 bankruptcy, also referred to as a wage earner’s plan, allows individuals with a “regular income” to reorganize and repay their debts. In Georgia, filing Chapter 13 bankruptcy offers a structured repayment period of 3 to 5 years, giving debtors a viable way to manage their financial burdens without liquidating their assets.
Can I Refinance My Mortgage While in Chapter 13 Bankruptcy in Georgia?
Yes, refinancing your home during a Chapter 13 bankruptcy case is not only possible but might be easier than you think, especially if you choose a lender that has experience with bankruptcies. However, specific criteria need to be met to qualify for refinancing including these items:
- At least 12 months of timely payments to your bankruptcy trustee, as per your bankruptcy plan.
- At least 12 months of timely mortgage payments (it is OK if you had late payments prior to the 12-month period).
- A minimum credit score of 580, but lenders can sometimes accommodate lower scores if there are “compensating factors”.
- Approval from the bankruptcy court.
- Sufficient income to cover your housing payment and other debt obligations.
- Evidence that the bankruptcy was caused by significant, uncontrollable life events, with steps taken to prevent future occurrences.
These requirements might seem stringent, but lenders need to ensure that you’re on a solid financial footing before they will extend credit as significantly as a mortgage.
What Are My Mortgage Refinance Options During Chapter 13 in Georgia?
Traditional conforming loans (backed by Fannie Mae and Freddie Mac) will not only not allow you to refinance while you are in a Chapter 13 bankruptcy in Georgia, but they also require a waiting period after your Chapter 13 bankruptcy is discharged. Fortunately though, government-backed loans like FHA and VA loans are much more lenient. These programs allow for refinancing during an active Chapter 13 bankruptcy under certain conditions, put in place to ensure that mortgage borrowers have shown a commitment to repaying their debts and maintaining their primary residence.
FHA loans, for instance, offer up to 96.5% of your property’s value for a rate and term refinance, and VA loans provide significant benefits for eligible veterans, including the possibility of refinancing up to 100% of your home’s value – if you are eligible for a VA loan. More importantly, for purposes of this blog, FHA loans allow cash out loans up to 80% of your property’s value, and it is these refinances that prove to be the most beneficial for many borrowers in Chapter 13.
How Can Refinancing Benefit Me During Chapter 13?
Refinancing your mortgage during Chapter 13 can provide multiple financial benefits:
- Lower Interest Rates: If rates have dropped since you last took out a mortgage, refinancing can significantly reduce your monthly payments.
- Debt Consolidation: A cash-out refinance allows you to pay off debts included in your bankruptcy, potentially paying off the plan early and improving your financial situation.
- Home Improvements: Funds from a cash-out refinance can also be used for home renovations, which may increase your property’s value or just allow you to enjoy your home more.
- Elimination of Bankruptcy: This is the most significant possible benefit, as many borrowers are able to pay off their bankruptcy entirely and get back on the road to excellent credit and financial stability.
What Should I Know About the Refinance Process?
The process of refinancing during Chapter 13 bankruptcy in Georgia mirrors the traditional refinance process but includes some additional steps. The process should look something like this.
- Ensure all of the eligibility criteria are met – with the help of your lender.
- Ensure you have enough equity – with the help of your lender.
- Complete your full loan application – with the help of your lender.
- Get estimated terms for your loan from your lender.
- Get bankruptcy court approval – with the help of your attorney and lender.
- Order appraisal (lender does this).
- Submit full file for formal underwriting (lender does this).
- Close loan, pay off debts, and re-establish credit.
Are There Any Downsides?
While refinancing can be beneficial, it’s important to be aware of the potential drawbacks:
- Credit Impact: While refinancing could adversely impact your credit score, it could also improve it – particularly if you pay off consumer debts or your bankruptcy entirely.
- Closing Costs: While refinancing always involves closing costs, the costs can be rolled into your loan or even covered by your lender in some cases. In addition, the overall savings from these refinances can often offset the closing costs quickly.
Frequently Asked Questions
What mortgage lender in Georgia lends to Chapter 13 bankruptcy cases?
Finding a mortgage lender that specializes in cases involving Chapter 13 bankruptcies in Georgia is crucial. Lenders like JVM Lending have tremendous experience and understand the specific requirements set by the bankruptcy court, the FHA, and the VA. Experienced lenders can help you assess your eligibility for a refinance and walk you through all of the necessary steps – while also helping you avoid all of the many pitfalls that can easily derail a refinance.
How does refinancing affect my Chapter 13 case?
Refinancing during a Chapter 13 bankruptcy can positively impact your case by lowering your overall monthly debt payments, which may help in managing your bankruptcy repayment plan more effectively. However, it is essential to get court-approved refinancing, which ensures that the refinancing aligns with your Chapter 13 case goals and legal requirements. And, if you are able to pay off your bankruptcy entirely, you will obviously experience an even more positive impact.
Can I refinance my home loan to pay off my Chapter 13 bankruptcy early?
Yes, with a cash-out refinance, you can potentially pay off your consolidated debts under the Chapter 13 bankruptcy plan. By using the equity in your home, you can settle debts and possibly complete your bankruptcy terms ahead of schedule. This can be an effective strategy to regain financial stability and improve your credit score much sooner than you otherwise could have.
What are the interest rates like for Chapter 13 bankruptcy refinances?
Interest rates for refinancing a mortgage during a Chapter 13 bankruptcy might be slightly higher due to the perceived risk or because of a lower credit score. However, government-backed loan programs like FHA loans and VA loans typically offer lower rates in general, and that will offset the adverse impact of your credit score or bankruptcy to some extent. Your exact rate will depend mostly on your credit score, but your loan amount and equity cushion could also play a role.
What minimum credit score is required for refinancing during Chapter 13 in Georgia?
Generally, a minimum credit score of 580 is required for FHA loan programs, which are often used for refinancing in a bankruptcy scenario. This threshold allows more borrowers to qualify for refinancing options, even with a bankruptcy filing on their record. However, better credit scores may provide access to more favorable loan terms and rates. In addition, lenders will also make exceptions for scores under 580 on occasion, if there are compensating factors, such as substantial equity, low debt ratios, and/or a very strong explanation for the bankruptcy.
How long does it take to get approval from the bankruptcy court for refinancing?
The timeline for obtaining court approval for a refinancing plan during Chapter 13 can vary. Typically, it might take anywhere from a few days to several weeks. Working with a knowledgeable mortgage lender and bankruptcy attorney can help expedite this process, as they can ensure that all paperwork is properly prepared and submitted promptly.
How much equity in my home do I need?
To just lower your interest rate, you need very little equity or as little as 3.5% of your home’s value. To get “cash out,” however, you will need an equity cushion of at least 20% after your loan closes. This means that your mortgage, all of the debts you want to pay off and your closing costs cannot exceed 80% of the value of your home.
Ready to Refinance?
If you’re considering refinancing your home in Georgia during a Chapter 13 bankruptcy, JVM Lending is here to help. We specialize in assisting clients with complex financial backgrounds to find the right refinancing options that fit their needs. Our expert team can guide you through every step, ensuring that you understand all aspects of the refinancing process and helping you make the most beneficial decision for your financial future.
If you’re ready to explore your refinancing options or simply need more information about how to manage your mortgage during your Chapter 13 bankruptcy, contact JVM Lending at (855) 855-4491 or email [email protected].
