Chapter 13 protection filings are at an all time high due to the soft economy. I have many clients that have been successfully refinanced out of their home loans while in bankruptcy. These clients assumed that the chapter 13 program was no longer available due to credit restrictions. This is not true, however, the rules are very specific. The first thing I want to address is the confusion in regards to the FHA minimum FICO scores. The magic number according to most lenders is 620 minimum(FHA has no min credit score, lenders make a determination based on credit markets and repurchase statistics). This restriction are not an FHA restriction, it’s typically an institutions restriction, that most investors have on the books. This does not mean that every FHA insured loan has to be 620 or better. This only means 620 or bette,r for the banks that follow this credit standard. The good news is; there still banks that have niche products that others will not consider. The true minimum by all the investors I’m aware of as of 4-01-2009 is 580.
The Chapter 13 debtor may be released from the bankruptcy,by having counsel file a motion for post petition refinancing. The court will review the findings, and grant or deny the motion. There must be a compelling net tangable benefit by securing post petition chapter 13 refinancing. An example of a NTB would be i.e. “The current open mortgage is an ARM, set to adjust during the term of of the bankruptcy repayment.” There are numerous other NTB’s for a chapter 13 refinance. The guidelines are very clear about what the investor will accept for a substandard credit grade (619 and lower) . You must answer yes to the following questions to be eligable : Since the time that you filed, all payments to the mortgage company and trustee have been on time? (never 30 or more days late preceeding the date filed) Have you been in the bankruptcy at least 24 months ? (36 months is ideal due to chapter 13 code. The plan becomes non base after 36 months/ unsecured claims are released in payoff figure) Is your FICO score at least a middle score of a 580? Are you currently employed or recieving permanate Social Security Disability/Pension/VA etc? Does your property have a loan to value of 85% or less ? Do you have at least 3 open active tradelines NOT included in the bankruptcy? (student loans are acceptable as open active tradelines, as long as they are in repayment 12 months or longer)
If you anwsered yes to any of the questions above, you may qualify for an FHA chapter 13 refinance.
The goverment is still wiling to insure loans that are considered ineligable for delivery to Fannie Mae or a traditional lending institutions. The only caveat is with manufactured homes. If the home is manufactured, (has hud tags on a perm. foundation) The property must meet HUD minimum requirments and credit grade must be a 660 FICO or higher.
Please shoot me an email or call to discuss the details of your particular situation.
About the Author:
Shawn Peck is a Safe Act licensed in the State Of Pennsylvania. Mr. Peck is a consultant to debtors, attorneys, and the debtors assigns to determine a feasaile exit strategy for the chapter 13 client(s). Mr. Peck is a regionally trusted source and dedicated exclusively to offering stratgies to debtors in Chapter 13 and Chapter 11 corporate debt restructing. Please call 609-721-1822 for details. NMLS ID : 8156 Member PAMB