Chapter 13 Bankruptcy Refinance

Understanding Chapter 13 Bankruptcy & Its Impact On Refinancing

Chapter 13 bankruptcy, often referred to as a wage earner’s plan, allows individuals with a regular income to develop a plan to repay all or part of their debts.  Chapter 13 bankruptcy involves a repayment plan over three to five years. This type of bankruptcy shows your commitment to repaying your debts and can be viewed more favorably by lenders when considering refinancing options​.

Refinancing during a Chapter 13 bankruptcy can present unique challenges, but it also offers potential benefits. It may allow you to take advantage of lower interest rates, reduce your monthly mortgage payment, or consolidate your debts into one manageable payment. However, qualifying for refinancing during Chapter 13 bankruptcy involves meeting stricter criteria than a standard refinance. Lenders will want to see evidence of your commitment to financial stability, including having made consistent payments on your bankruptcy plan for at least a year, among other requirements.

Navigating through a Chapter 13 bankruptcy can be daunting, and when you have an existing mortgage to refinance, the journey might seem even more challenging. However, at JVM Lending, we are committed to providing you with the necessary tools and expertise to help you find a path through this process. Let’s explore how refinancing your mortgage during a Chapter 13 bankruptcy can be possible and beneficial.

Core Benefits of Chapter 13 Bankruptcy Refinance

Refinancing during a Chapter 13 bankruptcy can yield numerous benefits:

• Lower Monthly Payments: If rates have dropped since your original mortgage, a rate and term refinance can help you secure lower interest rates, resulting in lower monthly payments.
• Debt Consolidation: A cash-out refinance allows you to leverage your home’s equity to consolidate and pay down your debts. This can provide substantial relief during your bankruptcy process.
• Improved Financial Standing: Successfully refinancing your mortgage during bankruptcy can demonstrate financial responsibility and can be a positive step towards improving your financial health.
• Flexibility: With an FHA, you can refinance up to 96.5% of the property’s value with a rate/term refinance.

Everyone’s situation is unique. Connect with a JVM Lending mortgage expert to see how a refinance could benefit you and discuss your refinancing goals.

Eligibility for Chapter 13 Bankruptcy Refinance

Here are the key criteria you need to meet to refinance during Chapter 13 bankruptcy:

• Timely Payments: You should have made at least 12 months’ worth of payments as per the bankruptcy repayment plan.
• Credit Score: A minimum credit score of 580 is required, depending on the loan program.
• One-Time Economic Event: You need to verify that the bankruptcy was a result of a significant, one-time economic event and that you have taken steps to avoid a similar occurrence in the future.
• Permission from Trustee or Bankruptcy Judge: You must obtain approval from the Trustee or Bankruptcy Judge to proceed with the refinance.

NOTE: There may be additional eligibility requirements depending on the details of your Chapter 13 bankruptcy. At the bottom of this page, we’ve outlined the requirements for various loan products for Chapter 7, Chapter 11, and Chapter 13 bankruptcy.

Interest Rates

In the context of Chapter 13 bankruptcy, interest rates play a crucial role in determining the feasibility of a refinance. During bankruptcy, your credit score may be impacted, which could result in higher interest rates than you would otherwise be offered.

However, if rates have dropped since your original mortgage, you can benefit from a lower monthly payment. With an FHA loan, you can refinance up to 96.5% of the property’s value.

Debt Consolidation

One of the most attractive benefits of refinancing during Chapter 13 bankruptcy is the ability to consolidate your debts. By leveraging the equity in your home, you can do a cash-out refinance to pay off some or all of your existing debts. This can provide immediate relief during a Chapter 13 bankruptcy and help accelerate your path towards financial stability.

We are experts at debt consolidation refinancing and love helping our clients save on their monthly debt payments. Get in touch with us or call (855) 855-4491 to see how we might be able to help you.

The Refinancing Process

Understanding the refinancing process during a Chapter 13 bankruptcy can help you navigate it more smoothly. Here are the key steps involved:

1) Ensure You Are Meeting Requirements

Before you can lock in your rate, you need to satisfy certain debt-to-income ratio (DTI) and property equity criteria. This involves providing income and credit documents, like paystubs, W2s, and bank statements​.

2) Home Appraisal

An appraisal will be ordered to confirm the property value and borrower equity.

3) Approval and Closing

Once the appraisal is complete, underwriting approval obtained, and court sign-off secured, the refinance is ready for closing. Keep in mind that court approval can take a few weeks to months, depending on the volume of cases​​.

Post-Refinance Considerations

After successfully refinancing during a Chapter 13 bankruptcy, there are still a few considerations to keep in mind:

Credit Impact

Although you’ve refinanced, the impact of bankruptcy on your credit report persists. It may take time to rebuild your credit and gain access to better rates.

Financial Management

Refinancing can be a significant step towards regaining financial stability, but it should be paired with responsible financial management. This includes creating a realistic budget, keeping up with your payments, and avoiding new debts that could jeopardize your financial recovery.

Long-term Planning

The goal of refinancing during bankruptcy is to put you on a path towards long-term financial stability. This involves not just managing your current financial situation, but also planning for your future financial needs.

Remember, navigating through a Chapter 13 bankruptcy and the refinancing process can be challenging, but you don’t have to do it alone. At JVM Lending, our team of experts is ready to guide you through every step of the way.

Frequently Asked Questions

Is it possible to refinance during a Chapter 13 bankruptcy?

Yes, it is possible, but it does require meeting additional lender criteria and gaining approval from the court.

Can I refinance if my credit has been impacted by bankruptcy?

Yes, but it might affect the interest rate you receive. Some individuals choose to wait until their bankruptcy has been discharged to allow their credit to recover.

What additional requirements are there for FHA loans during Chapter 13 bankruptcy?

FHA loans require that you have lived in the property as your primary residence for at least 12 months. For an FHA loan, you can refinance your loan balance up to 96.5% of the property’s value on a rate and term refinance.

What costs are associated with refinancing during bankruptcy?

Refinancing involves closing costs which include title and escrow fees, appraisal fees, notary fees, etc. For those struggling financially, these costs can potentiall be rolled into the new loan amount or covered by a lender credit for a ‘no cost’ refinance. However, you will still need to cover costs incurred regardless of refinancing such as prepaid interest and impounds.

FHA Mortgages for Borrowers In or Out of Bankruptcy

NOTE: Borrowers with a discharged Chapter 13 Bankruptcy are subject to the same rules as Chapter 7 & 11 filers, so it is often better for Chapter 13 filers to apply for a mortgage BEFORE their bankruptcy is discharged.

VA Mortgages for Borrowers In or Out of Bankruptcy

NOTE: Borrowers with a discharged Chapter 13 Bankruptcy are subject to the same rules as Chapter 7 & 11 filers, so it is often better for Chapter 13 filers to apply for a mortgage BEFORE their bankruptcy is discharged.

Non-QM Mortgages for Borrowers In or Out of Bankruptcy

NOTE:  Review this matrix and contact JVM Lending for additional explanation

Hard Money Mortgages for Borrowers In or Out of Bankruptcy

NOTE:  Hard money or private money loans are loans that do not require any income or credit documentation at all, as they focus solely on equity – with the exception of compensating factors.**

NOTE:  These mortgages have high interest rates and are short-term in nature. They should only be obtained if there is no other alternative and there is a clear plan to re-establish credit within one to two years when a refinance into a much better mortgage will be a viable option.  These mortgages are, however, also excellent vehicles to be used in the short-term to re-establish credit, when sufficient equity is available.  We have many hard money sources at JVM and are happy to match them to your needs.

Take the Next Step with JVM Lending

At JVM Lending, we have a highly experienced team that specializes in diverse mortgage loan products, including Chapter 13 bankruptcy refinance loans. We are committed to offering competitive rates while ensuring a personalized service experience for each of our clients. We are equipped with the knowledge and skills to guide you through the complexities of the loan process and will be your trusted partner throughout your homeownership journey.

Our team at JVM Lending is here to guide you every step of the way. Start your JVM loan application online or contact us today at (855) 855-4491 to discuss your refinance goals.