Refinancing while in Chapter 13 Bankruptcy

Can you consider refinancing while in Chapter 13 bankruptcy? There are different forces at play here with regard to the answer to this question. The first consideration is that while you are actually in Chapter 13 bankruptcy you can make no changes to your debt situation without involving your court appointed trustee and getting his or her approval of a change.

Where in the bankruptcy process are you?

How long you have been in the Chapter 13 bankruptcy process counts. Chapter 13 bankruptcy is really a reorganization of your debt, with a plan to repay your creditors over the course of three to five years under the supervision of the courts. While some of your debt burden may have been reduced or interest rates lowered as part of the debt reorganization and agreement with your creditors, your debt is not considered discharged until such time as you have completed the repayment plan that your bankruptcy called for.

How long do you have to wait?

From the lender's perspective, refinancing is similar to qualifying for an original loan. Lenders in today's tight credit market have strict guidelines for the borrower's credit needed to qualify. Expect that the soonest you may be able to refinance or get a new loan is 2 years from the date your bankruptcy was discharged or 4 years from when your bankruptcy was dismissed (perhaps because you haven't kept up with the payment plan).

If you filed for Chapter 13 bankruptcy more than one time in the last 7 years, you can expect to wait for 5 years from the most recent discharge or dismissal date before you can refinance.

Remember that Chapter 13 does not allow you to reorganize and discharge all of the debt you may have had prior to filing bankruptcy. If you have court appointed alimony, child support, debt related to restitution from a criminal charge or taxes some or all of those debt obligations will continue after the repayment plan under Chapter 13 for your other debt has been completed.  And when it comes to getting any type of financing or refinancing, all of your outstanding debt as a ratio to your income will be important to your potential lender.

Talk to your lender and get expert legal help.

Each lender has different underwriting guidelines; you may have a long search to find one that will offer you refinancing at an affordable interest rate. If you are considering or are in a Chapter 13 bankruptcy and have questions about its impact on your life for years to come, find a local bankruptcy attorney who is willing to analyze your situation, answer your questions and help you make sound decisions.