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How may I refinance a mortgage loan after bankruptcy?

On Behalf of | Mar 26, 2021 | Chapter 13 Bankruptcy, Chapter 7 Bankruptcy |

The type of bankruptcy you file may determine how soon you could apply for a new mortgage loan. While the record remains on your credit report for up to 10 years, you may apply for certain types of mortgage loans within a few years after a discharge.

A Chapter 7 bankruptcy eliminates most consumer debts; the court may, however, require you to use your home’s equity to pay your creditors. If you own a home and have enough equity, you may have an option to keep some of that equity by filing for a Chapter 13 bankruptcy.

How soon could I apply for a mortgage loan or refinance?

With a Chapter 13, a trustee reviews your income and debts. He or she works with you to create an affordable payment arrangement to repay creditors. After completing your payments under a Chapter 13, the court may discharge the remaining balance owed.

After creating a new budget, you may find that your circumstances could improve through a mortgage with lower payments. As noted by U.S. News and World Report, you may apply to refinance your mortgage in one year after you begin making payments through a court-approved Chapter 13 plan.

How long after a Chapter 7 discharge may I apply for a mortgage?

A Chapter 7 bankruptcy wipes out most consumer debts, but it requires a longer waiting period before applying for a new mortgage. The waiting period for a government-backed mortgage is two years, and most banks require a four-year wait after a Chapter 7 discharge.

If you can show that the financial circumstances leading to bankruptcy were temporary and have improved, a lender may approve a new mortgage before the post-discharge waiting period ends. Filing your petition may help demonstrate to lenders your commitment to a fresh start.