Bankruptcy Mortgage Refinance - It's a common misconception that no lending institution will work with a borrower to refinance while in bankruptcy.
Depending on the type of bankruptcy and the amount of equity in your home, refinancing while in bankruptcy is a possibility.
If you're in a Chapter 7 bankruptcy, it's not likely that even a bankruptcy-friendly lender will complete a mortgage refinance until you receive a discharge. (A discharge is court order that stops creditors from collecting or attempting to collect a debt.) While not every debt will be discharged and not every debtor will receive an order of discharge, this is the only possible scenario for consumers who want to refinance while in Chapter 7 bankruptcy.
Refinancing while in Chapter 13 bankruptcy is far more common, even in today's stringent lending climate. If you're currently in Chapter 13 and have been making on-time and in-full payments to the Trustee for at least six months and have received court approval for the refinance, you may be eligible to refinance your mortgage.
Typically, it will take 30 days for your bankruptcy attorney to obtain court approval, and about the same length of time to prepare a mortgage refinance closing. Ideally, as soon as you've obtained a commitment to finance, you should contact your bankruptcy attorney to begin the process of obtaining court approval. If it's not timed properly, your lending commitment may expire or the lender may move forward in the process before you've obtained court approval, causing you to break the rules and jeopardize your case.
Keep in mind that traditional lenders and mortgage brokers generally will not refinance while in bankruptcy, so it's likely that you'll have to work with a specialized lender. As with any loan, rates and fees will vary widely, so be sure to shop around for the most favorable terms.
Refinancing while in bankruptcy can be a daunting task, but if you're diligent throughout the process, you'll be one step closer to regaining control over your personal finances.