Filing for bankruptcy initiates an automatic stay on foreclosure, which can be a godsend when the risk of losing one's home is imminent. But many bankruptcy filers understandably want to avoid even the threat of foreclosure, and they might be considering refinancing their home loan as a way to better meet their monthly mortgage payments. Below is an overview of mortgage refinancing and its relationship to bankruptcy, highlighting some important details every homeowner should bear in mind.

Pre-Bankruptcy Refinancing

It makes sense to want to do everything possible to avoid foreclosure. But if you try to refinance an existing mortgage loan before filing for bankruptcy, there is no guarantee that a new financing plan would be approved by your lender. Different lenders have different guidelines, but most will look at your credit report and existing debts, including any foreclosure action in process against you. If there is a large amount of unsecured debt there, or your credit score is weak, they may not be willing to grant a refinancing.

For those who do choose to refinance before bankruptcy and are approved for a new payment plan, be sure not to take any cash out of your home equity. Once you file for bankruptcy, the courts require you to disclose where all money is coming from and where it is going. If there was a recent cash windfall from one's home equity, it could raise red flags. Not only will the courts want to know the source of this money, but they will want to know how it was spent and why it wasn't used to pay off debts.

Post-Bankruptcy Refinancing

You will typically have to wait a certain amount of time to pursue mortgage refinancing after bankruptcy. Both your lender and the type of home loan you have will determine the length of this waiting period. But be aware that it's not uncommon to impose a two- to four-year wait on a bankruptcy filer before they are allowed to refinance a mortgage. With that said, some lenders may be amenable to refinancing sooner; just be mindful of the interest rates you're going to be charged, as these could be substantial after a bankruptcy filing.

One final note for Chapter 13 filers. Chapter 13 bankruptcy is a debt repayment plan, unlike Chapter 7, which eliminates many kinds of unsecured debt. If you file for Chapter 13, you will have to get the court's permission to refinance a mortgage.

The bankruptcy and foreclosure lawyers of Padgett & Robertson, Attorneys at Law guide clients through every step of the process, and they will advise you on the best refinancing options to pursue surrounding a bankruptcy filing. Since 1978, they have been representing clients throughout Alabama’s Mobile and Baldwin counties with all aspects of bankruptcy. Call the law office at (251) 342-0264 or visit their website to schedule a free consultation with a trusted lawyer.

No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.