Chapter 13 “Bankruptcy Buyout”

A Chapter 13 Bankruptcy involves making monthly payments to a trustee.  If you have filed for a Chapter 13 Bankruptcy and own a home, then you may be able to pay off that Bankruptcy using your equity.  This type of transaction is commonly referred to as a “Bankruptcy Buyout”.  

With the permission of the court, you may close out a Chapter 13 bankruptcy by originating a new mortgage on your primary residence as high as 90% Loan-To-Value (LTV).  LTV is calculated by dividing the new mortgage amount by the appraised value of the property.  The LTV for a homeowner currently in a Chapter 13 will vary depending in part on the number of payments that have made since filing date.  The more on-time payments that have been made, the lower the risk to the lender and the higher the LTV allowed. 

Other factors that are typically considered for a loan of this type are mortgage payment history, credit score, income and debt ratio. 

Although real estate values have soared and some mortgage lenders offer relaxed underwriting guidelines for this program, many debtors currently in the throes of a Chapter 13 are unaware that they may qualify for a Bankruptcy Buyout.