How to Purchase or Refinance While in Chapter 13 Bankruptcy

Options for Navigating a Home Loan While in Chapter 13 Bankruptcy

Are you in a Chapter 13 bankruptcy? Currently own a home and have equity? OR – are you renting and wish you could buy before rates rise? If yes, there may be good news for you. Under current FHA and VA programs, options may be available for homeowners or renters to obtain the home loan financing they are looking for. I’ve been helping borrowers navigate this challenging situation for over a decade.

For homeowners looking to refinance a current mortgage to better terms, consolidate a 1st and 2nd mortgage, there also may be options. Many borrowers are also wanting to pay off their Chapter 13 balance in full and look to obtain an early discharge with a cash out refinance. If you have enough equity, you may be able to use it to pay your mortgage debt and applicable interest. For current renters looking to buy and start building equity – there might be a potential program for you too!

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For purchase or refinance, here are the basic starting set of guidelines.

1. 1. You’ll need 2 out of 3 credit scores to be above 580 to get started. Your mortgage credit scores will likely be different than the credit monitoring you use, they could be higher or lower. We also have a very helpful credit simulator to help build a roadmap for future qualification if you don’t qualify today.

2. No late payments are allowed on any credit account within 12 months of application. In addition, we have to look back 24 months on installment and mortgage payments and any late payments during this time period could result in a denial of the loan application. For purchase transactions, we will need to verify 12-24 months of rent payments.

3. Minimum of 12 months payments made to the trustee. In addition, all plan payments from filing through loan closing must be made within the month due. The exception to this rule is if the trustee or court acknowledges that any missed plan payments were allowed and the Chapter 13 plan is still considered paid as required. This will be case by case.

4. There must be 1 month of “post-closing reserves” or in regular terms – one month worth of your new housing payment left, after your loan has closed.

5. The bankruptcy court or trustee will need to approve the transaction terms. For refinances that pre-qualify, you will receive a Loan Estimate of terms to send to your bankruptcy attorney to start the approval process. They may require additional documents like the title, payoffs, and an underwriting approval to submit for court approval – refer to your attorney for your district’s specific requirements. For purchase prequalification, most courts require a signed purchase agreement with a specific property address, purchase price, down payment amount, along with estimated loan terms to request approval. Please ask your attorney about the exact process for your area.

Sound intimidating? It’s really not, it is just a process that we take one step at a time. No matter where you are in the country, if you are 12 months or more into a Chapter 13 bankruptcy, then there may be hope to buy or refinance a home. Feel free to reach out with your specific details and I will be happy to discuss your situation in detail. I hope this sheds some positive light on home loans while in Chapter 13 bankruptcy.

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Seanna Severtson

Loan Officer
NMLS# 1944418
C: 208.618.9547
F: 208.593.2783


Chapter 13 Refinance

Last year I reached out to a few mortgage companies trying to refi my house in order to payoff my Chapter 13 bankruptcy, but they all told me I needed to wait a year in order to do so. So this year, 2021, I started my search again and came across Willamette Valley Bank who dealt with bankruptcy loans. I filled out the questionnaire and received a call from Eric William Vander Werff. He assured me that they could help me out of the situation I was in. The process started in Feb 2021 and it wasn’t an easy task. Most of the roadblocks I came across were from tax lien issues, trustees, and attorneys asking for certain financial items. Eric guided me through the entire process and made sure we stayed on track. Eric was instrumental in helping me get out of my Chapter 13 bankruptcy and back on track to a more peaceful stress free life. Not only was I able to payoff the bankruptcy, but I received a cash payout with an FHA loan and the interest rate was lower than my previous one. If anyone is currently in the same situation I was in, I would HIGHLY suggest you contact Eric at Willamette Valley Bank.

Borrower from Chino, CA


Let’s Talk Home Loans! I Look Forward to Hearing From You! Eric

Willamette Valley Bank is not currently processing refinance applications in the state of Texas.