Sometimes filing bankruptcy is a necessary step to keep from losing your home. For example, a Chapter 13 filing allows you to get caught up on past due mortgage payments without having to face foreclosure. Chapter 7 lets you wipe out unsecured debts, freeing up cash flow so there’s less financial pressure to keep up with your loan payments.
Once you come out of bankruptcy, you’ll have to begin the hard work of repairing the damage to your credit. This is crucial, particularly if you plan on refinancing your mortgage at some point to try lower your interest rate or reduce your payments. If you’ve got an FHA loan, there are a few things you need to keep in mind if refinancing is your long-term goal.
You Won’t Be Able to Refinance Right Away
The Federal Housing Administration imposes a mandatory waiting period before you can refinance after bankruptcy. If you filed a Chapter 7 case, you’ll have to wait two years from the date of the initial discharge to apply. With a Chapter 13 case, the waiting period is satisfied after one year but you have to be staying on track with your repayment agreement.
If you have a high balance FHA loan, you’ll be waiting a little longer. Generally, you’re considered to have a high balance loan if you borrow more than $417,000. If you filed bankruptcy with this kind of loan, you’ll have to wait seven years before refinancing is an option.