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Should you refinance after a Chapter 13 bankruptcy?

Can residents of Washington, D.C., refinance their home's mortgage while they are going through bankruptcy proceedings? Although Chapter 13 bankruptcy is unlikely to disqualify borrowers from being approved for an FHA mortgage, refinancing might not always be the right move. Financial experts say it is wise to first determine your reasons for seeking a loan modification. Although lower rates may provide you with lower monthly payments, this can also be achieved by extending the term of the loan.

Borrowers who are seeking an FHA mortgage will have to receive permission from their bankruptcy court in order to pursue a refinancing loan. Further, in most cases, Chapter 13 borrowers must show a satisfactory one-year payment history in order to qualify for the refinancing options. In reality, a two-year waiting period after the bankruptcy is discharged -- or a four-year period after the bankruptcy dismissal -- is actually more realistic.

Chapter 13 borrowers may benefit from pursuing additional options through the Home Affordable Modification Program and other government-sponsored incentives. Modifications for HMAP loans may actually be available during your Chapter 13 case. Still, attorneys and bankruptcy trustees are still likely to get involved in that process, as the mortgage servicer may require additional assurance that you are financially capable of paying for the modified loan.

Chapter 13 bankruptcy does not automatically eliminate borrowers from important life steps such as buying a home or vehicle. It does, however, have the potential to change the interest rates that you pay. Your bankruptcy attorney and trustee may be able to provide you with additional information about home refinancing to help you determine whether this move is right for you during or after your Chapter 13 proceedings.

Source: Fox Business, "Bankrupt and Looking to Refinance Mortgage" Don Taylor, Apr. 29, 2014

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