Getting a mortgage while in Chapter 13

Although filing a Chapter 13 is considered a type of bankruptcy, it is still possible to refinance a mortgage as long as the refinance will allow the borrower to buy-out of the Chapter 13 pay-off.

It is also important not to incur any new delinquencies after filing CH 13. As long as the BK payments and any other credit payments were made on time, the borrower should be able to get a new mortgage.

In order to be able to refinance and buy out the Chapter 13 Bankruptcy you will generally need to have a good payment history on the Chapter 13 and you will also need to obtain permission from the trustee.

There are usually strong advantages to using the equity in your home to pay off the Chapter 13 bankruptcy. The biggest advantage will most likely be cash flow. Most borrowers will get hundreds of dollars in monthly cash flow savings by refinancing to pay off the Chapter 13. One other big advantage will be credit score improvement. The sooner the bankruptcy is discharged the sooner the borrowers credit score will start to see improvement.

It is also possible to find purchase money while in Chapter 13. There are two options that you may have:

1.) Show 12 months of perfect payment history.
2.) Temporarily come out of Chapter 13 to get the loan then re-enter Chapter 13.

Obviously the first option is the best. FHA loans are the best option if you can show 12 months of perfect payment history and will give you a much better rate than the alternatives.

For the borrowers who are currently in Ch 13 and wanting to purchase a house, the lender will allow you to get a new mortgage as long as you could prove to FHA and the BK trustee that the new mortgage payment won't hinder the payment schedule for the CH 13.

Your Chapter 13 trustee will have to approve the payment of your new mortgage in order to allow you to refinance your home in order to pay off your Chapter 13 debt and exit from Chapter 13.