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Is it possible to refinance a mortgage after bankruptcy?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 23rd Dec, 2005 01:24pm
Bankruptcy can indeed be very harmful, strenuous and demoralizing experience. It is very tough and challenging task for you to get out of bankruptcy stains. It has become tougher since the devastating property market crash the country had witnessed in recent past. Though it’s difficult but still it’s not impossible to obtain a mortgage loan after bankruptcy or to refinance after bankruptcy. However, to do so, you have to devise an appropriate financial recovery plan. Here are the guidelines that you need to follow so as to obtain a refinance loan after bankruptcy.

  • Filing for a Chapter 7 and Chapter 13 bankruptcy has different implications. You need to understand the difference between filing for these 2 types of bankruptcies. Generally, Chapter 7 bankruptcy is discharged within 6 months, whereas for Chapter 13 bankruptcy discharge, it takes 3 to 5 years. But, after one year of Chapter 13 bankruptcy case, you may be eligible for refinancing a mortgage.

  • You need to start reconstructing your financial life immediately after filing bankruptcy. You must put in serious efforts to re-establish your credit. Your lender examines your credit report so as to judge your creditworthiness. Anyways, the negative effects of bankruptcy remain on your credit report for several years. A Chapter 13 bankruptcy shows up on your credit report for nearly 7 years and a Chapter 7 bankruptcy stays on your credit report for nearly a decade. However, with some concrete steps, you can get back to solid financial footing. You must pay your bills on time, without fail. You can employ automatic deposit system from your paycheck account to pay the debts. Even by taking out a secured credit card and by making timely payments, you can improve your credit score.

  • You should get an estimate of the current market value of your home. Then you need to compare the current market value of your home with outstanding mortgage balance. In other words, you need to calculate the loan to value (LTV) ratio. If you have got discharge from bankruptcy recently and if your LTV ratio is more than 75%, then it will indeed be very difficult for you to obtain a home refinance loan at better rates.

  • Bankruptcy badly hurts your finances. It depletes your cash reserves. You can increase your chances of getting approved for refinancing after bankruptcy if you can show some cash increases. You can do so by taking a second job, selling a yard or two, selling some items in an online auction etc. If you can show up that you have accumulated some cash reserve, then you may get approved for refinancing even with a recent bankruptcy discharge.

Not all the lenders will be interested to offer you a home refinance after bankruptcy. Anyways, you will surely find out some lenders who will offer you such loans. It is quite likely that the rates charged will be higher than the rates charged for conventional type of refinancing. Anyways, you must shop around so as to find out the best lender.
Posted on: 23rd Dec, 2005 01:24 pm
I filed bankruptcy was declared two years ago. How long will it take to refinance at a lower rate?
I have a 30 year mortgage and still have 18 years to go. I filed chapter 7 almost 9 years ago. Should I wait to refinance until next year. I have a joint credit card and have never been late and have made large payments each month.
Posted on: 07th Dec, 2009 02:17 pm
hi rosie,

you've mentioned that almost 9 years have passed since you filed bankruptcy. i guess, you've reaffirmed the loan and you are paying the dues accordingly. you do not need to wait for the next year to refinance the mortgage. you can apply for a refinance with your lender right away. i hope you have rebuild your credit after your bankruptcy was discharged. if you've a good credit score, it will help you in getting better rates while you refinance.

Posted on: 07th Dec, 2009 09:18 pm
Posted on: 14th Feb, 2010 11:21 am
You won't be able to qualify for a loan so soon. You'll have to wait for 2 years after the discharge to qualify for a FHA loan and 4 years after the discharge to qualify for a conventional loan. Thus, it is a good option to rent a property for the time being, improve your credit and financial situation and then look out for a loan.
Posted on: 15th Feb, 2010 01:04 am
How long do you have to wait after your Chapter 7 bk has been discharged to buy a new home? I thought it was 3 years, but I am being told that the house in the bk that the deed has to be out of your name for 3 years
Posted on: 08th Sep, 2010 07:10 pm
hi missy!

welcome to forums!

after your chapter 7 bankruptcy filing has been discharged, you'll have to wait for 4 years in order to qualify for a conventional mortgage. but i haven't heard of any such requirement that you will have to own the property for 3 years to get a mortgage.

feel free to ask if you've further queries.

Posted on: 09th Sep, 2010 12:56 am
We are looking to buy our 1st home and our chapter 7 bankruptcy was discharged about 14 months ago. Our credit score is around 700 and we would have 20% down. Does the approval of a mortgage go off of your credit score or the actual amount of time passed. Im a little confused because some posts are stating there is no actual amount of time by law but than many are saying 2 or 4 years. Do we have any chance of getting a mortgage
Posted on: 03rd Feb, 2011 11:04 am
Hi Joann,

Your query has been replied to in the given page:

Take a look at it. Hope it helps you.

Posted on: 03rd Feb, 2011 10:42 pm
i have fallen behind on my homeowners association dues and with the lawyer fees attached, i owe $6,000. i was to pay $400 a month but was not able to keep up. would filing bankruptcy stop the lawsuit?
Posted on: 12th Feb, 2011 01:12 pm
Welcome Louise,

Filing bankruptcy may help you in stopping the lawsuit. You should contact your bankruptcy attorney and take his help in this matter.
Posted on: 13th Feb, 2011 10:47 pm
Our chapter 7 was discharge in Nov, 2009. The other day I checked my credit report and it said that the mortgage "debt included in Chapter 7 Bankruptcy". I keep geeting statements from my mortgage company and we have been making payments since the discharge. My question is: Is the mortgage wiped out? Do we have to make the monthly payments? What happens if we stop making the payments? The credit report said there is no balance on my mortgage loan, but the statements from the mortgage company show that there is a balance. Who is right?
Posted on: 22nd Mar, 2011 05:37 am
Welcome aggordon,

The mortgage won't get wiped out. If you haven't reaffirmed the loan, you won't be personally liable for paying the loan. The lender will foreclose the property in order to recover the mortgage payments.
Posted on: 22nd Mar, 2011 10:49 pm
I don't think you need to wait until your bankruptcy get discharge. You can find many lenders who provides immediate loan after your bankruptcy. They are specialized in dealing with people with bankruptcy.

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Posted on: 14th Jun, 2012 11:19 pm
Spend six months and after you have build your credit score, you can get your loan refinanced but you have to search for private lenders who are willing to offer loan after bankruptcy. Apart from this, I would personally advise you to start a saving account as any lender will look for your assets before offering loan.
Posted on: 07th Sep, 2012 03:50 am
You don't need to wait too long. You can apply for refinance after six months from the date your bankruptcy was declared, the thing you need to do is to find lenders agree for the deal.

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Posted on: 14th Sep, 2012 02:58 am
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