Chapter 13 "Buyout"

[simon2020]

I have been researching and happen to land on a new term I just learned today. Buyout.

I learned that I can "buyout" my Ch 13 plan by refinancing my home and paying off the plan early.

Has anyone heard of this and have you used it during your Ch 13 plan?

How many months must I wait to contact a financial-mortgage company to refi my home and hopefully pay off my plan? 12 months? How does it work?

Any information would would be most appreciated.

[Flamingo]

We bought out early from our 5 year Chapter 13 in 2006 (filing in 2002); however, we filed under the "old law" and at that time, you could not buy out of your plan until you were in your plan 36 months; if you bought out prior to 36 months, your plan had to be paid back at 100% instead of the percentage of the Plan at which you were confirmed. In order to do so at that time, we contacted our attorney. We were advised we had to prove we had enough equity in our house to buy out (get an appraisal), give the reasoning for wanting to buy out (we had a badly leaking roof which would not have gone another year to year and a half and had to replace the entire roof) and the attorney would contact the Trustee. When the Trustee approved, we had the go ahead to attempt to get refinancing and our attorney gave us the name of a great broker. At that time, designer mortgages and ARMS were very popular but our broker steered us away from those types and got us a fixed rate, 30 year mortgage at 6.5% which was the average going rate at that time so it worked out well for us. We were able to pay off our entire plan at the confirmed percentage and get enough funds to do some major repairs to our house that were badly needed, including a new roof.

When did you file? Was it prior to October 15, 2005? If so, you are old law and would fall under the above; if you filed after that date, you are under the new law and there has not been much posted on here on anyone yet attempting to buy out of their plans. The 36 month mark for anyone first filing under the new law would have been this past October and not too many people filed at that time so it may be a while yet before anyone starts posting anything on this forum as to their attempt to buy out, if it is possible.

Your first step in any situation regarding this is to contact your attorney for further instructions.

[simon2020]

100%

Thanks Flamingo for your comments.

I have not filed yet so I am in the new plan starting possibly on 3/1/09 - based on my conversations with my attorney a week ago.

I own a second home and I do not want to sell it for different reasons. So my attorney said I will be in a 100% plan.

This buyout - almost seems like a backwards refi -- if I can call it that.

What I mean is - it seems if someone cannot refi due to bad credit prior to bk, but then files ch 13 -- a few months later (assuming there is equity in my home - which there is) then I can do a buyout during my ch 13 plan and payoff all my creditors - albeit probably at a higher interest rate (since I filed BK).

Am I making sense?

Did you have to ask the trustee for permission to do a buyout?

Did you pay any points?

Thanks.

[Flamingo]

First and foremost, you will need to have the funds to buy out of your Plan and need Trustee approval to do so. If you were not able to get refinancing to pay off your creditors prior to filing, it is not going to be a piece of cake after filing Chapter 13 either to obtain it. I suggest you discuss this in full with your attorney prior to filing.

We had to refinance via an FHA mortgage; Due to the BK we pay PMI in our payments for five years even though we refinanced at less than one half of the value of our house at that time (way more than 20% equity). At five years that will stop. Yes we had one point I believe as we deduct a small amount of that each year on our taxes as we itemize (point amount divided by 30, the length of the mortgage).

Since you have not yet even filed, make sure you go over all your questions with your attorney because he/she knows your financial position the best and can guide you accordingly.

[justbroke]

Am I making sense?

Did you have to ask the trustee for permission to do a buyout?

Did you pay any points?

Buying out is almost unheard of in post-BAPCPA 2005 Plans, because first, it's 100%. If you come across that type of money during the Plan years, then excellent... buy out. But again, it's 100%... regardless of whether you had that second home... for a buyout. Even if you only kept your homestead... it's 100% for the buyout post-BAPCPA 2005.

As for asking permission... absolutely. You have to ask the Trustee how much would it be to buyout the Plan. They will give you a payoff figure.

I wouldn't consider it a backwards refinance. You won't get traditional lending, but there are some programs (like FHA) that will do this for Chapter 13 debtors while they are in-plan. There are some people who specialize in this FHA-buyout loan as well. Not everyone qualifies. Your payment history is important. There are other guidelines on equity and such as well.