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.
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