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Can I Refinance My Home in Bankruptcy?
Many consumers today are under the impression that once they file for bankruptcy, they will lose everything. This is not necessarily true, especially when it comes to your home. The state of the economy means lenders are more willing to listen to homeowners filing for bankruptcy than they were just a decade ago. Even though your finances are in a complete mess, a bankruptcy attorney can help you work through this and save your biggest asset.
If you have filed for a Chapter 7 bankruptcy, your options may be a bit more limited concerning your home depending upon how much equity you have in the home. If the homeowner has significant equity, you may be forced to sell the home in order to generate income to pay off debts included in the bankruptcy. However, with little to no equity, the bank may be willing to rework your terms.
A Chapter 13 bankruptcy better lends itself to refinancing the home. With this type of bankruptcy, the borrower is usually given a three to five-year period in which to repay debt. If at the end of this period they are still unable to meet their debt, these debts can be fully dismissed. The economy being what it is, many lenders are willing to renegotiate terms during this period in order to recover more of the debt owed.
If you decide that you would like to try to refinance your mortgage during bankruptcy, the first step is in determining the actual purpose of the refinancing. Are you doing this to pay off existing debt included in the Chapter 13, to generate some excess cash flow, or trying to turn an upside down mortgage with a high interest rate into more favorable terms? It may be easier to refinance knowing the funds will eliminate much the debt that put you in this situation.
Your bankruptcy attorney will be able to guide you through the process as well as help you negotiate with your lenders. He or she can also help point you in the right direction for lenders that specifically work with individuals already in a bankruptcy.
Remember, filing for bankruptcy does not necessarily mean that you have to lose everything. More and more people are using Chapter 13 bankruptcy to reorganize their debt and turn high interest rates and upside down mortgages into better terms and lower interest rates. At worst, you go through the three to five year payoff period and have everything discharged. At best, you are able to rework all terms with your creditors, save your home, and prevent a major black mark on your credit report.