We have received a lot of questions over the years regarding how quickly you can refinance a mortgage following bankruptcy.
Here are some of the questions we have received:
- “How soon can I refinance following a bankruptcy?”
- “I have been out of Chapter 13 bankruptcy for 15 months, can I refinance?”
- “How can I refinance my mortgage in a Chapter 13 bankruptcy?”
- “We filed bankruptcy 2.5 years ago. Can we refinance?”
Since the rules have changed throughout the years regarding how quickly you can refinance, we wanted to be sure we were presenting the most up-to-date information.
For starters, if you are underwater on your mortgage, meaning your mortgage amount is higher than the value of your home, your only refinance opportunity will be through the HARP program.
Fannie Mae and Freddie Mac
The earliest you can get a new mortgage guaranteed by Fannie Mae or Freddie Mac following a bankruptcy is two years.
According to Freddie Mac’s guidelines, 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 not due to your actions (i.e. overspending) but rather due to illness, income loss, etc., the period will still 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 cannot meet Fannie or Freddie guidelines, you may be eligible for an FHA-backed refinance. According to HUD, you will need to document that "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."
You can read more about Fannie Mae guidelines here.
This new one-year waiting period is thanks to a program called the “Back to Work Program.”
To qualify, you must meet the following guidelines:
- 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
Refinancing while in bankruptcy
For starters, the bankruptcy court will need to grant you permission to take on new debt (it's not new debt, per se, as you're replacing an old loan with a new one, but a new lender and fresh paperwork filings mean it is treated as new debt). To be able to proceed, you'll need to file a motion with the court to take on new debt. Although described differently in each court district, you are essentially filing a "motion to incur debt" or "motion to refinance secured debt".
The best place to start is with the attorney that handled your bankruptcy, who should be familiar with the motion paperwork needed in your particular district.