Refinancing and Bankruptcy: What Are Your Options?

Going through bankruptcy is not the end of the road, although many consider it that way. Bankruptcy can open up opportunities for you to get back on track. One of the ways to do this is to apply for a refinance mortgage. While this may prove to be difficult, refinance offers a lower interest rate which can ease your payments, allow you to save money and rebuild your credit rating.

Does Refinancing Affect A Pending Bankruptcy?

Generally, refinancing does not affect a pending bankruptcy. The difficulty lies in finding a mortgage company that is willing to take the risk of lending to people going through bankruptcy proceedings. Refinancing is an option available for debtors especially if your home is involved. However, the application process is more tasking for these people than those who are not undergoing bankruptcy. Through the assistance of a legal counsel, debtors can have their home or other property refinanced subject to their trustee's approval. After finding a mortgage company who is willing to lend you money; you must create a new budget plan through the help of your lawyer. Based on legal information, the budget plan must show the change in the cost of housing after the refinance. Thereafter, you can file for a motion in the bankruptcy court.  You may be subject to the payment of court fees, although such fees may be included in the budget plan which is to be paid during the length of bankruptcy. This shall be subject to the trustee's approval, which requires another visit to the courts for a hearing. 

 

 

Should Spouses Change Names Before Bankruptcy?

The answer is no. If your spouse is on the mortgage when you are claiming bankruptcy, that spouse will be the one liable for it. Changing the name on the mortgage before filing for bankruptcy constitutes fraud and will subject participants to such act to criminal consequences.

How Does Bankruptcy Affect the Refinance Process?

Bankruptcy affects the refinance process in such a manner that the debtor will experience a harder time in applying for refinancing. The advantage of bankruptcy is it allows you to resell your mortgaged property and discharge deficiency balances should there be any. This way, you are able to dispose of your unsecured credits which may comprise a huge chunk of your debt.

Bankruptcy can also protect you by prescription through the statute of limitations--the period when your creditors can file collection suits against you for money you owe them. After the lapse of the period and your creditors were not able to file collection suits, you are relieved of such debts.

The disadvantage of bankruptcy, on the other hand is its long-term effect on your credit score. Bankruptcy will leave a negative mark on your credit report from seven to ten years. Even when you are complying faithfully on your payments after bankruptcy, that negative mark will give you a constant reminder of your poor credit history. Not only will you notice it, but your potential lenders will too. The presence of the negative marks and the low rating will discourage future loan applications which you may badly need.

 

 

Refinancing, on the other hand, is like obtaining a new mortgage. Because refinancing offers a lower interest rate, you can seize the opportunity to save money. Lower interest rates also mean lower payments which can result to increased savings. Moreover, mortgage lenders are more accommodating to refinance those who have just gone through bankruptcy because of the minimal risk it poses. The downside, however, is refinancing for those with bad credit rating requires higher interest rates. For those with second mortgages over their property or those who have accumulated huge debt, refinancing could cause more trouble.