Bankruptcy and Home Mortgage Refinance Options

Article Posted by Expert Author: Tony Caro  on 09/09/2013

Truthfully, it will not be easy to find a mortgage refinancing service willing to be amicable to those who find themselves in a bankruptcy situation. However, there are lenders out willing to work with troubled borrowers. Be forewarned though, the interest rates you might be required to pay might not exactly be the best or lowest rates available. This is just going to be the case when you have the dark cloud of bankruptcy looming over your head.

The Type Of Bankruptcy Matters To Your Mortgage

Chapter 7

If you have filed for total bankruptcy, or Chapter 7 bankruptcy, then most of your debts will be eliminated. In addition, you may have to sell or liquidate some of your property so that some of the debt can be repaid.

A mortgage on any existing property will be designated as either non-exempt or exempt when Chapter 7 is filed. An exempt designation means that you can retain ownership of your property as you go through bankruptcy. If you have been deemed non-exempt, then you will have to surrender your property or pay the property's value in cash as a means to meeting the bankruptcy terms. But this isn't always cut and dried, because some cases have seen homeowners being able to keep their homes after having been deemed to be non-exempt. The designation received will depend on the individual trustee and how they decide to deal with the issue of property.

A Chapter 7 filing means that the homeowner is no longer legally obligated to pay the loan on their home. However, you may still be responsible for paying the lien on your home, which is a right or interest your mortgage company has on your property until the mortgage has been paid in full. And so while Chapter 7 may communicate you don't have to pay your mortgage, not doing so will likely result in the loss of property, as your lender can then move in and enforce the lien they have on your home.

Chapter 13

If you have filed for Chapter 13 bankruptcy, then you will find that your debts are not completely eliminated, but instead are expected to be repaid. In this case, a plan must be filed which outlines how you plan to repay those you owe. Depending on what you can afford, you may be able to repay all, some or none of your outstanding debts.

Chapter 13 bankruptcy filings do not result in the loss of property. Instead, the homeowner formulates a plan for how they intend to repay their mortgage. Once Chapter 13 is filed, an automatic stay on the property is issued. This stay communicates to collections agencies that they must cease and desist all of their efforts to collect. This will also stop foreclosure temporarily.

For homeowners wondering how long after they file Chapter 13 to wait until they can get a new mortgage, at least one year must pass following the Chapter 13 discharge. If you are a veteran, you may be exempt from this rule. There are lenders who will likely consider you before one year has passed. However, they will also likely have a set of rules and regulations that have to be adhered to.

Very little can cause financial havoc on your life more than filing for bankruptcy. Granted, there are certain Washington DC refinance home mortgage lenders that will never work with anyone that has filed for bankruptcy. However, this is not the case with all lenders. Some might be willing accept a refinancing application under certain conditions such as three years having passed since the applicant filed for bankruptcy.

If bankruptcy is the only option, you may want to hold off on a refinance home mortgage while you sort out your financial house.  There is life after bankruptcy, but there may be some habits that need to change in order to avoid this scenario again in the future.

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