The rules have changed over the years regarding how quickly you can refinance a mortgage after bankruptcy. If you are underwater on your mortgage, meaning your mortgage is more than the current value of your home, your only refinance option will be through the Home Affordable Refinance Program (HARP). The earliest you can take out a new mortgage guaranteed by Fannie Mae or Freddie Mac following a bankruptcy is two years.
Freddie Mac’s guidelines say, the “waiting period” for reestablishment of credit after a Chapter 13 bankruptcy is 48 months from the dismissal date, but this period is only in effect if the bankruptcy was “caused by financial mismanagement.”
If the bankruptcy was due to illness, income loss, etc. and not due to overspending, the period will be 24 months from the discharge date. Fannie Mae has similar rules in effect of two years from the discharge date or four years from the dismissal date.
If you are unable to meet Fannie or Freddie’s guidelines, you may be eligible for an FHA-backed refinance. You will need to document “one year of the pay-out period under the bankruptcy has elapsed, that your payment performance has been satisfactory and all required payments have been made on time, and you have received written permission from the bankruptcy court to enter into the transaction.”
This one-year waiting period is thanks to the “Back to Work Program.” Here’s how you qualify:
- You meet all the typical FHA loan requirements;
- You can properly document the issues that led to your financial hardship;
- In the last year you have re-established your credit;
- You have completed HUD-approved housing counseling.
What about refinancing while you are still in bankruptcy? For starters, the bankruptcy court will need to grant you permission to take on new debt. To be able to proceed, you will need to file a motion with the court. Although described differently in each court district, you are essentially filing a “motion to incur debt” or “motion to refinance secured debt.”
Start by working with the attorney who handled your bankruptcy filing, they will be familiar with your case and know the motion paperwork needed in your district.
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If you are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.