Refinancing during Chapter 13 bankruptcy may seem out of reach, but it’s possible under the right conditions. You just need to understand what it requires and work through the process.
You need court approval
In Indiana, you can’t refinance a mortgage or take on new credit while under Chapter 13 without approval from the bankruptcy court. The court wants to make sure refinancing helps you complete your repayment plan, not hurt it. You’ll need to file a motion explaining the loan’s terms and why it benefits your case. If approved, the court issues an order allowing the refinance.
Your trustee must agree
Besides court approval, your Chapter 13 trustee must agree with the refinance plan. The trustee reviews your finances and makes sure the new loan won’t harm your ability to make payments. A refinance that lowers your monthly payment or interest rate often helps your plan succeed, making approval more likely.
Lenders may hesitate but options exist
Some lenders hesitate to refinance loans during Chapter 13, but it’s not impossible. You may need to shop around for lenders that work with bankruptcy filers. Having made on-time plan payments for at least 12 months can help prove you’re a reliable borrower. If your credit and income support the new loan, refinancing becomes more likely.
Refinancing can improve your plan
Refinancing during Chapter 13 can help you lower costs, catch up on missed mortgage payments, or switch to a better interest rate. If it strengthens your ability to finish your repayment plan, both the trustee and the court are more likely to approve it. The key is showing how it works in your favor.
