Refinancing in Bankruptcy
Posted on 31. Mar, 2009 by emmettjones in Bankruptcy
Refinancing is generally defined as a replacement of an existing debt with a new debt that has different (usually better) terms. People use refinancing or a “re-fi” for a myriad of different reasons; using extra money to pay off credit card debt, turn adjusted rate mortgages into fixed rate mortgages, consolidation of loans, etc. But what about those people who have already filed bankruptcy and are already repaying or having their credit card debt discharged? Can they refinance as well? And is there any purpose to refinancing?
Yes. and Yes.
It is possible to refinance your home mortgage while in bankruptcy as long as you have PRE-APPROVED COURT APPROVAL. The refinancing process is generally the same, with your bankruptcy attorney initially filing a motion requesting refinancing (containing pertinent information like lender’s name, amount financed, etc.), a hearing on that motion and then a court decision sometime after that hearing which would either grant or deny the motion filed by your attorney. The process is approximately 45 to 60 days long (at least in the Western District of Pennsylvania), so attempting to refinance is obviously going to take some advance planning on the part of the debtor and the attorney, lest the lender take their offer off the table.
Refinancing in Chapter 7
Due to the relatively short length of most Chapter 7 cases, refinancing while in a Chapter 7 is fairly unlikely. As I mentioned before, the entire process of receiving court approval could take roughly two months, which is approximately half the time spent in the bankruptcy. Furthermore, once the re-fi is approved, the lender has paperwork that needs to be signed, disclosures to send out, etc. hold-up’s that usually make the hassle of even attempting to receive refinancing in a Chapter 7 a less than worthwhile option.
Refinancing in Chapter 13
Refinancing in a Chapter 13 is a much more likely scenario, and usually occurs a few years after the case has began. Refinancing in Chapter 13 bankruptcies is usually used to pay off a Chapter 13 plan (the same way it would be used to pay off credit card debt) or to fix mortgage rates and potentially lower Chapter 13 plan payments.
In the end, yes, it is certainly possible to refinance while in bankruptcy. So, the next time your Chapter 13 plan payments are becoming unbearable and you have some equity in your property, don’t rule out the possibility of a refinancing; go and discuss the situation with your attorney. For those Chapter 7 debtors? You only have to play the waiting game for about 6 months or so, then refinancing will be available to you as well.
