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Should I refinance before or after bankruptcy?
My wife and I need to consider bankruptcy, since we have a great deal of credit card and car debt. We would also like to refinance our mortgage, which is at too high a rate.
Unfortunately, even if we refinance, we will probably have to file for bankruptcy; I don’t think refinancing will do enough for us, though it will help and we want to keep our house. My question is, should I refinance before or after bankruptcy?
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Answers
There is no right or wrong answer. While it can be more difficult to refinance after filing bankruptcy, especially shortly after bankruptcy, it’s not prohibited. And while loans taken out just before bankruptcy are often suspect—since the debtor may be taking them out intending to default, which is fraud—that’s not as much of an issue with a secured debt (like a mortgage) than an unsecured debt; it’s also not nearly as much of an issue when you are adjusting or refinancing an existing debt rather than taking on new debt. Both factors mean that mortgage refinancing in this situation is not likely to be—or be seen as—fraudulent.
That means you can look to refinance either before or after the bankruptcy. Which is more advantageous for you is very fact- and situation-specific, so there’s no way to give a general answer. You might discuss the matter with a bankruptcy attorney, and/or a CPA or financial planner, for advice, based on the particulars of your situation. While bankruptcy damages your credit rating, it also cleans up debt and puts you on a firmer financial footing; if you have sufficient debt, especially compared to your current income and assets, that you need to consider bankruptcy, you might actually be a better candidate for a loan after bankruptcy than before.
As stated, it all depends on your exact situation. Talk to a Bankruptcy Lawyer about your situation, and get good advice about how best to protect your assets and get rid of your debts.
Good luck.
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Posted by Steven Sweig on 07 Apr 2010
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