Can You Refinance While In Chapter 13 Bankruptcy?

refinance while in chapter 13

What’s The Key To Refinancing While In Chapter 13 Bankruptcy?

Facing financial hardship can be overwhelming, and sometimes, a Chapter 13 bankruptcy can be the lifeline you need. However, life doesn’t stop during bankruptcy. Unexpected situations may arise, such as a job relocation requiring a move, or the need for a larger home due to a growing family. One question that often comes up is: “Can you refinance while in Chapter 13 bankruptcy?”

The answer is yes, but it requires navigating some additional hurdles. This guide will explore the process of obtaining refinancing while in Chapter 13 bankruptcy, the challenges and benefits involved, and the steps you can take to increase your chances of success.

Quick Summary

  • Chapter 13 bankruptcy allows individuals with regular income to repay debts over time while retaining property.
  • Advantages of Chapter 13 include asset retention, debt consolidation, and stopping foreclosure.
  • Refinancing during Chapter 13 is possible with court approval, detailed documentation, and finding a willing lender.
  • Steps to successfully obtain refinancing involve preparing financial documentation, consulting with a bankruptcy attorney, finding a suitable lender, submitting a motion to incur debt, and closing the loan.

Chapter 13 and Refinancing: Is It Possible?

Chapter 13 bankruptcy is designed for individuals with a regular income who can pay back at least a portion of their debts over time. It allows debtors to keep their property and pay debts over time, usually three to five years. This form of bankruptcy is often seen as a better alternative for those who want to retain their assets and manage their debt in a structured manner.

You can refinance during an active Chapter 13 bankruptcy case – but only if you follow the rules.

Why Choose Chapter 13 Over Chapter 7?

While Chapter 7 is the more popular option due to debt discharge, Chapter 13 offers distinct advantages in specific situations. Here are some reasons why you might choose Chapter 13 over Chapter 7:

  • Asset Retention: Unlike Chapter 7, where non-exempt assets can be liquidated to pay off creditors, Chapter 13 allows you to keep your property.
  • Debt Consolidation: Debts are consolidated into a single monthly payment, which can be more manageable.
  • Stopping Foreclosure: Filing for Chapter 13 bankruptcy can stop foreclosure proceedings and allow you to catch up on missed mortgage payments over time.
  • Flexible Repayment Plans: The repayment plan can be adjusted based on your financial situation.

Key to Refinancing while in Chapter 13 Bankruptcy

Life doesn’t pause during bankruptcy. You may find yourself needing to refinance your mortgage or purchase a new home due to various reasons such as a job transfer or the need for a larger space. The good news is that obtaining a new mortgage loan while in Chapter 13 bankruptcy is possible, but it involves several steps and considerations.

Getting Court Approval: The Motion to Incur Debt

The first step in refinancing while in Chapter 13 bankruptcy is getting permission from the court. This is done by filing a “Motion to Incur Debt.” This motion outlines the specifics of the loan you wish to take, including whether you are refinancing an existing mortgage or purchasing a new home.

Information Required for the Motion

To file the motion, you will need to provide the following details:

  • Reason for the New Mortgage Loan: Explain why you need the new loan, whether for refinancing or purchasing a new home.
  • Cash-Out Refinance Details: If you are taking cash out as part of the refinance, you must specify how the funds will be used.
  • Interest Rate and Monthly Payment: Provide the interest rate of the new loan and the new monthly payment amount.
  • Affordability: If the new monthly payment is higher, explain how you will afford it. If it is lower, detail how the savings will be used.
  • Loan Term and Type: Specify the term of the new loan and whether it is a fixed-rate, adjustable-rate, or a balloon note.
  • Closing Costs: Outline the closing costs associated with the new loan.

Common Scenarios for Approval

The court generally approves the motion if the request makes common sense and is financially justifiable. For example:

  • Refinancing for Better Terms: If you are refinancing to get rid of an adjustable-rate mortgage or a balloon note, the judge will likely approve it.
  • Lower Interest Rates: Refinancing to obtain a lower interest rate is typically viewed favorably.
  • Necessary Home Repairs: If cash-out from the refinance is needed for essential home repairs, such as replacing a roof, the judge may approve it.

Finding a Willing Lender

The more challenging part of refinancing while in Chapter 13 bankruptcy is finding a lender willing to work with you. Lenders often require:

  • Court Approval: Proof of the court’s order approving the new loan.
  • Payment History: Documentation showing that you have been current on your Chapter 13 payments and mortgage payments for at least the past 12 months.

Documentation Needed

  • Court Order: The lender will need to see the court order approving the new mortgage loan.
  • Chapter 13 Payment History: You can obtain proof of your Chapter 13 payments from the trustee’s website.
  • Mortgage Payment History: If your mortgage payments are included in your Chapter 13 plan, this proof is straightforward. If not, you will need to get this proof from your mortgage lender.

Benefits and Challenges Of Refinancing While In Chapter 13 Bankruptcy.

There can be advantages to refinancing your mortgage while under Chapter 13 bankruptcy, but it also comes with hurdles you’ll need to overcome. Let’s look at both sides of the coin:


  • Improved Loan Terms

Refinancing can lead to better loan terms, lower interest rates, and more manageable monthly payments.


  • Opportunity for Home Repairs

Accessing cash through refinancing can help address urgent home repairs and improvements.


  • Relocation Needs

Purchasing a new home might be necessary due to job relocation or changes in family size.


  • Finding a Lender

It can be difficult to find lenders willing to work with borrowers in Chapter 13 bankruptcy.

  • Court Approval Process

The process of obtaining court approval can be time-consuming and requires detailed documentation.


  • Maintaining Payment Compliance 

You must maintain compliance with your Chapter 13 payment plan to qualify for a new loan.

Remember, weighing the benefits and challenges can help you decide if refinancing during Chapter 13 is the right move for you.

Steps to Successfully Obtain Refinancing While In Chapter 13 Bankruptcy.

Refinancing your mortgage while in Chapter 13 bankruptcy requires careful planning and following specific steps. Here’s a roadmap to increase your chances of success:

Step 1: Prepare Your Financial Documentation

Ensure that all your financial documentation is in order. This includes:

  • Recent pay stubs
  • Tax returns for the past two years
  • Bank statements
  • Current mortgage statements

Step 2: Consult with Your Bankruptcy Attorney

Work closely with your bankruptcy attorney to prepare the Motion to Incur Debt. Your attorney can guide you through the required information and ensure that your motion is compelling and complete.

Step 3: Find a Suitable Lender

Research and identify lenders who are experienced in working with borrowers in Chapter 13 bankruptcy. Your attorney may have recommendations based on past client’s experiences.

Step 4: Submit the Motion to Incur Debt

File the motion with the bankruptcy court and wait for approval. Be prepared to provide additional documentation or clarification if requested by the court.

Step 5: Close the Loan

Once the court approves the motion and you have secured a lender, proceed with the loan application process. Ensure that you provide all necessary documentation and meet all lender requirements.

Keep in mind that refinancing while in Chapter 13 bankruptcy can be complicated. Working with a legal professional and a knowledgeable lender can help you successfully navigate the process.

Need to Refinance While in Chapter 13? Contact Roach Bankruptcy Center, LLC Today!

If you need to refinance while in Chapter 13 bankruptcy, contact Jason Roach at Roach Bankruptcy Center, LLC today. Our Missouri bankruptcy lawyer is ready to guide you through the process and help you secure the best possible outcome.

Roach Bankruptcy Center, LLC – Your Partner in Financial Recovery.

We make the process simple and stress-free. By choosing Roach Bankruptcy Center, LLC, you are choosing a partner dedicated to helping you rebuild your financial future. Reach out to our legal team and schedule a free initial consultation today. Let us help you take the next step toward financial stability and homeownership. 

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