Many New Yorkers may file for Chapter 13 bankruptcy in order to pay back overwhelming debt through manageable payments. In order to free up some extra cash to pay off these debts, consumers may consider refinancing their home. Is this even possible after a Chapter 13bankruptcy?
It all has to do with timing. For a homeowner with a recent bankruptcy, refinancing may be next to impossible. However, there is the Home Affordable Modification Program, which allows homeowners to refinance while in the middle of a Chapter 13 bankruptcy. The request must be submitted to the lender of the current mortgage.
The chances of approval are greater a year or two down the line. For a Federal Housing Administration mortgage, the bankruptcy must have been finalized for at least one year. The homeowner must have paid all payments on time during that period. In addition, he or she must get permission from the court before refinancing. For conventional refinancing, the wait time is extended to two years. If the bankruptcy is dismissed, the wait time is four years.
While a bankruptcy does offer a fresh financial start, it does come with some challenges when trying to refinance a loan or apply for a new loan. In some cases, refinancing can mean an extended payment term, which means that consumers are in debt for a longer period of time. Obviously, lenders are concerned about consumers filing for bankruptcy and then drowning in debt again, so they may not be quick to approve this type of request. However, by repaying debts on time and showing responsibility, consumers can prove to lenders that they have learned from their money mistakes.
Source: FOX Business, “Bankrupt and Looking to Refinance Mortgage” Dr. Don Taylor, Apr. 29, 2014by