Navigating your financial recovery during a Chapter 13 bankruptcy in Oregon 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 Oregon?
If you’re considering filing Chapter 13 bankruptcy in Oregon, it’s crucial to understand what it entails. Commonly referred to as a “wage earner’s plan,” this form of bankruptcy allows individuals with a regular income to develop a strategy to pay back their debts. The process typically spans three to five years and involves adhering to a structured repayment plan approved by the court. But what happens if you own a home and wish to refinance your mortgage during this period or while you are still IN your Chapter 13? Let’s dive into the specifics of Chapter 13 bankruptcy in Oregon and how it impacts your ability to refinance.
Can You Refinance Your Mortgage While Filing Chapter 13 Bankruptcy in Oregon?
The simple answer is yes, but there are conditions. Refinancing a mortgage during Chapter 13 bankruptcy in Oregon isn’t just possible, it’s feasible with the right approach and understanding of the legal framework. You can do what is called a “rate and term” refinance, where you just lower your interest rate, or you can do a “cash out” refinance, where you tap into the equity of your home. We will discuss the benefits of both refinance options below, but the important thing to remember is that you will need to meet a very specific set of criteria which we set out below.
What Are the Benefits of Refinancing During Chapter 13 Bankruptcy?
Refinancing your home during Chapter 13 can have two major benefits. One benefit can come from lowering your interest rate if the current interest rate is more favorable than the one in which you took out your original mortgage. Refinancing into a lower rate will lower your mortgage payments and make it easier to meet your obligations under your bankruptcy plan. The other potential benefit though is much more significant, and it involves pulling cash out of your home to use to pay down debts within your bankruptcy or to pay off your bankruptcy in its entirety.
Cash out mortgages require more equity (discussed below) but they can put you back on the road to excellent credit and financial stability much faster if you are in a bankruptcy now. This is particularly the case if you have enough equity to pay off your bankruptcy.
How Does Refinancing Affect Your Credit and Bankruptcy Case?
Many fear that refinancing during a bankruptcy will negatively impact their credit score. While filing for Chapter 13 protection itself will adversely impact your credit, refinancing may have a neutral or even a positive effect, especially if it leads to more manageable debt payments or, even better, consumer debt payoffs. Successfully navigating a refinance can also demonstrate to creditors your commitment to restoring your financial stability. It’s essential, however, to consult with your bankruptcy attorney to ensure that the refinancing process aligns with your ongoing case and offers a genuine benefit.
What Criteria Must Be Met to Refinance During Chapter 13?
To refinance your mortgage while under Chapter 13 bankruptcy in Oregon, several criteria need to be met:
- 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.
What Should You Consider Before Refinancing?
Before deciding to refinance your mortgage during Chapter 13 bankruptcy, you should consider the potential closing costs, which can include appraisal fees, escrow fees, title insurance, loan processing fees, and notary fees. The good news is that these closing costs can often be rolled into your loan, so you don’t have to pay for them out of pocket.
In addition, lenders can sometimes offer “no-cost” refinancing options where some or all of the closing costs are covered by a lender credit, but these credits often result in slightly higher interest rates. The savings and benefits from a refinance though often more than offset the closing costs – and your lender should be able to explain this in much more detail.
What Are The Steps I Need to Take to Refinance?
Here is a rough outline of the necessary steps.
- Find a qualified lender with tremendous bankruptcy experience.
- 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.
Frequently Asked Questions
How does filing a Chapter 13 bankruptcy in Oregon affect my ability to get a home loan?
Filing for Chapter 13 bankruptcy doesn’t automatically disqualify you from obtaining a home loan, but it does affect how lenders view your creditworthiness. During a Chapter 13 bankruptcy, you can still qualify for some types of home loans, particularly through programs that are designed to accommodate individuals with bankruptcy histories, such as FHA and VA loans.
These programs generally require that you’ve made consistent payments, as required by your repayment plan, and have maintained a stable income. These loan programs also don’t allow you to refinance, once again, until you have made at least 12 months of on-time payments to your bankruptcy trustee.
What should I know about mortgage payments during a Chapter 13 repayment plan?
During Chapter 13 bankruptcy, your mortgage payments might continue as usual, or they may be included in your structured repayment plan, depending on your specific circumstances. If you are considering refinancing, the new mortgage terms can potentially lower your monthly payments, which might make it easier to manage your overall monthly debts under the bankruptcy plan.
Can I refinance my mortgage to pay off tax debt included in my Chapter 13 bankruptcy?
Yes, if you have significant equity in your home, a cash-out refinance might allow you to use the equity to pay off tax debts consolidated under your Chapter 13 repayment plan. This is contingent upon court approval, as all significant financial decisions during bankruptcy must be overseen by your bankruptcy trustee. Make sure the refinance offers a financial advantage, such as a lower interest rate or reduced overall monthly debts.
What if I have a low credit score?
A low credit score can affect the interest rate offered on a refinance – or preclude you from refinancing altogether. However, certain government-backed programs, like those from the FHA, are more lenient towards individuals in bankruptcy. Most lenders like to see a minimum score that is no lower than 580, but exceptions are made for even lower scores if there our “compensating factors” like very low debt ratios, substantial equity or a very strong explanation for the bankruptcy filing.
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.
Are there specific lenders who deal with bankruptcy cases in Oregon?
Yes, some lenders (like JVM Lending) specialize in helping clients undergoing bankruptcy and it is important that you find such a lender, as there are many nuances and pitfalls involved when you are trying to refinance while in a Chapter 13 bankruptcy. Small mistakes can significantly slow down or even derail the entire process.
Is Refinancing Right for You?
Deciding whether to refinance during Chapter 13 bankruptcy in Oregon requires careful consideration of your financial situation, current mortgage terms, and long-term financial goals. Refinancing can provide significant financial relief and stability – and put you back on the road to fully restored credit. But it’s essential to navigate the process with expert advice.
If you’re looking to refinance your home after filing for Chapter 13 bankruptcy protection in Oregon, consider reaching out to JVM Lending. With ample expertise in managing numerous refinances for individuals undergoing bankruptcy, JVM Lending can provide the guidance and support needed to effectively explore your refinancing options.
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].
