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Buying a House During a Chapter 13

Qualifying for a Mortgage
While Still in Chapter 13

Because Chapter 13 cases can last up to five years, there is a chance that you will need to refinance your mortgage while you are still in Chapter 13.  You may also have the desire to buy a home and therefore need to qualify for a mortgage.

Many Chapter 13 debtors are surprised to learn that the Chapter 13 rules permit debtors to incur mortgage debt - even while their Chapter 13 is ongoing.

Qualifying for a mortgage while in Chapter 13 is exactly the same as any other mortgage qualification except for two additional factors.  First, your credit rating may be reduced because of your bankruptcy and second, you will have to secure permission from the Chapter 13 trustee prior to entering into a mortgage loan contract.

The credit issue often turns out to be less of a problem than you might think.  Many mortgage companies have programs that will qualify you for a mortgage while you are in Chapter 13 if you can show two years of regular payments to the Chapter 13 trustee.  It goes without saying that any other direct payment credit you may have - such as an existing mortgage or a vehicle lease - should be kept current as well.

A qualified mortgage broker can find mortgage programs available to you as  a Chapter 13 debtor.

The second issue that you will face is the trustee approval process.  Trustee Kenneth Still requires that any Chapter 13 debtor who wants to obtain a new mortgage must comply with certain procedures.

Trustee Still requires a good bit of documentation about your mortgage loan.  You will also need to reveal where you got your down payment.  Your trustee might also ask for changes to your Chapter 13 repayment plan, including increasing the payment or percentage repayment to unsecured creditors.

Clark & Washington suggests that you call our office prior to beginning your mortgage loan process.  We can advise you what to expect from the trustee and help you decide if it makes economic sense for you to refinance or secure a new loan while you remain in your Chapter 13 case.