Refinancing your home loan is possible during a Chapter 13 bankruptcy and may even help you meet repayment obligations sooner than the requisite three to five years. However, you’ll need to meet the lender’s refinancing requirements, notify your Chapter 13 trustee and follow Chapter 13 laws for incurring new debt.
Research Loan Options
Begin researching loan options once you’ve made at least 12 on-time debt repayment and mortgage payments to the trustee or your current mortgage company. While the decision about whether you qualify is ultimately up to the mortgage company, an FHA refinancing loan or similar option can make qualifying easier.
Contact the Right People
Once you find a lender willing to approve your refinance application, contact the trustee assigned to your case. Refinancing while you are in a Chapter 13 debt reorganization case requires prior approval from the bankruptcy court.
Wayne Godare, a Chapter 13 trustee from Portland, Oregon, recommends that you also contact and work with a bankruptcy attorney. This is especially important if refinancing is a recent decision, as the trustee will most likely require that you notify all creditors -- and give each one time to respond -- before approving your request. In all, this can take up to 30 days.
Submit Required Documents
Although the required forms and documents may vary slightly depending on your location, you’ll generally need to file a motion with the bankruptcy court. The motion explains your reasons for wanting to refinance, how it will affect your repayment plan and what you plan to do with any money you may receive in the refinance above the costs of paying off the original loan. For example, you may want to pay each creditor a percentage or pay everyone in full from these funds.
You’ll also need to submit a written authorization to release information to a third party; a preliminary title report showing the home has no outstanding liens, including tax liens; an estimated HUD-1 Closing Statement; and the amount of your new mortgage payment if you not paying off your plan.
From start to finish, it usually takes about 14 business days from the date the motion is filed to get permission to complete the refinance transaction.
If you wait to refinance until after a Chapter 13 discharge, you’ll need to meet lender requirements but won’t have to get court approval.
- FHA.com: Should I Consider an FHA Refinance Loan?
- Shaev & Fleischman LLP: Refinancing Your Mortgage While In Chapter 13
- United States Courts. “Chapter 13 - Bankruptcy Basics.” Accessed Aug. 18, 2020.
- United States Courts. “Discharge in Bankruptcy - Bankruptcy Basics.” Accessed Aug. 18, 2020.
- United States Courts. “Chapter 7 - Bankruptcy Basics.” Accessed Aug. 18, 2020.
- United States Courts. “Instructions, Bankruptcy Forms for Individuals,” Pages 33-34. Accessed Aug. 18, 2020.
- United States House of Representatives. “11 USC 1325: Confirmation of Plan.” Accessed Aug. 18, 2020.
- United States House of Representatives. “11 USC 330: Compensation of Officers.” Accessed Aug. 18, 2020.
- American Bankruptcy Institute. "Success Rates in Chapter 13." Page 1. Accessed Aug. 19, 2020.
- United States House of Representatives. “11 USC 1322: Contents of Plan.” Accessed Aug. 18, 2020.
- Nolo.com "Steps in a Typical Chapter 13 Bankruptcy Case." Accessed Aug. 19, 2020.
- U.S. Bankruptcy Court Eastern District of Michigan. "How to File a Motion for Relief From the Automatic Stay." Accessed Aug. 19, 2020.
Based in Green Bay, Wisc., Jackie Lohrey has been writing professionally since 2009. In addition to writing web content and training manuals for small business clients and nonprofit organizations, including ERA Realtors and the Bay Area Humane Society, Lohrey also works as a finance data analyst for a global business outsourcing company.