Bankruptcy & Refinancing

Getting a mortgage loan to buy a house puts the debtor together with monthly payments that are a legal obligation, in a position of obligation. Have quite a few alternatives, including refinancing using a new mortgage, asking the lender to modify a mortgage or filing for bankruptcy in a federal court.

Refinancing to Prevent Bankruptcy

Refinancing a mortgage loan is 1 way to prevent insolvency oftentimes. Refinancing involves replacing an present mortgage with a new one that pays off the first. By refinancing, homeowners might be able to secure a lower interest rate, or substitute for an adjustable-rate mortgage with a fixed rate that offers a predictable monthly payment that will not increase abruptly later on. Refinancing permits homeowners to extend the period of time they spend paying for their houses, which might make it easier to eventually pay off the loan.

Interest Only

By refinancing having the interest-only mortgage homeowners who face financial hardship may prevent bankruptcy. These loans allow the borrower to pay only the interest rates each month, which results in a payment that is much more affordable. On the other hand, the period is temporary, and when it expires, the borrowers eventually become responsible for paying interest as well as the principal quantity of the loan. This makes interest-only a short-term way to prevent bankruptcy.

Chapter 13

There are two choices for bankruptcy. The first is Chapter 7, where a court liquidate his assets to pay creditors and could forgive the debts of an individual. Chapter 13 bankruptcy is different. It involves reorganizing debt instead of eliminating it. Homeowners who have difficulty refinancing and can’t get a lender to agree to a loan alteration may use Chapter 13 bankruptcy to get a court to order a reduced payment program that’s affordable.


Homeowners who want to file for Chapter 13 bankruptcy must do this in a federal court, which is. Filing for bankruptcy involves submitting financial documents that are detailed to the court, along with a filing fee. Bankruptcy filers should also submit an application for repaying any debts, and the court may use for ordering creditors to accept the payment program that is new. This kind of refinancing permits the homeowner to pay back the debt during the next five decades.


After any form of refinancing, if organized with a lender or purchased by a court in a bankruptcy case, the homeowner is responsible for the loan as if it were the original mortgage. While refinancing might not have a negative effect on a borrower’s credit history, bankruptcy has a impact. According to the Federal Trade Commission, bankruptcy can stay on a credit report for as many as ten decades. It might prevent the homeowner out of accessing other loans, including second mortgages or loans. Only years of obligation, including making mortgage payments in time, can fix the harm bankruptcy does to some credit history.

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