Mortgage Refinance during Chapter 13 Question

[SleepWellNow]

I am trying to help an elderly, disabled widow who is losing her home and I'm hoping to get some assistance on this forum. She filed a Chapter 13 BK in 2005 after her husband's death and her accident which rendered her disabled. She had 2 loans with Bank of America. Her Chapter 13 was discharged September 2008. While still in Chapter 13 and about 4 months away from discharge, she refinanced her 1st and 2nd loan with a different company and paid off Bank of America. I have checked Pacer and do not see anything relating to the refinance. These are my questions...

1. Can a person refinance a mortgage while in active Chapter 13?
2. Would the Trustee need to be involved?
3. If the Trustee does need to be involved, would he still need to be involved if the mortgage payment is being paid outside of the Chapter 13 plan?

I'm trying to determine how the bankrupty affects the mortgage that was refinanced while in bankruptcy (or if it does). I'd appreciate any information that can be provided which will assist me in helping this woman.

Thank you.

[lrprn]

1. Can a person refinance a mortgage while in active Chapter 13?

Yes, but it is difficult (sometimes impossible) to accomplish. My concern is that your elderly widow did the refinance during her active 13 herself directly with the second lender without her laywer or her trustee knowing she did it. Do you know if that's the case?

2. Would the Trustee need to be involved?

If her 13 was still active, then yes - the trustee would have to be notified about anything related to the assets in the plan. However, since her Ch 13 has been discharged and closed successfully, if you are asking whether her former trustee needs to be notified about the refinance, it depends on whether the trustee was aware of the refinance at the time or not. If not, then you should cross-check this with her former Ch 13 attorney about what to do in that situation.

3. If the Trustee does need to be involved, would he still need to be involved if the mortgage payment is being paid outside of the Chapter 13 plan?

During an active 13, it doesn't matter who is making the monthly mortgage payment - the filer or the trustee. Her home would still be a part of her Ch 13 plan.

After discharge, the trustee is no longer involved in any of the assets in the plan. The successfully discharged Ch 13 filer can do whatever they want with any of their assets after discharge.

Bless you for helping this widow - she's lucky to have you!

[SleepWellNow]

My concern is that your elderly widow did the refinance during her active 13 herself directly with the second lender without her laywer or her trustee knowing she did it. Do you know if that's the case?

Irprn - Thank you for your response. After speaking again with her, she said she doesn't think her attorney knew about it. She's pretty confused about what transpired. For some reason, she made the decision to combine her first and second mortgages just prior to her discharge (both of which were with Bank of America). The new lender immediately sold the loan to Countrywide. Bank of America took it over after Countrywide went under. I spoke to a mortgage broker who is familiar with the company that refinanced it. I was told it is a large company that does a lot of FHA loans and it would be virtually impossible for the FHA loan to be approved without the lender knowing about the Chapter 13. She said a mistake could of happened in which the lender didn't make sure the Trustee signed off on it, but it isn't likely. However, I went on Pacer to see if the docket indicated anything about a refinance. As far as I can tell, there is no mention of her mortgage other than BofA made a request for special notice soon after the Chapter 13 filing.

I am concerned whether I am opening up a can of worms by bringing it to light she refinanced without her attorney and Trustee knowing about it. She can't afford her home any more and wants to short sale it. It's underwater by almost $100K. I was hoping the house was included in the BK and she could just walk away from it, sparing herself the stress and trouble a short sale would bring her. I'm just not clear how a Chapter 13 discharge works with a mortgage.

Should I contact her BK attorney or would that get her into some sort of trouble? If it would get her into trouble, perhaps she should try and short sale it and let sleeping dogs lie.

[newbie2]

Irprn - She can't afford her home any more and wants to short sale it. It's underwater by almost $100K. I was hoping the house was included in the BK and she could just walk away from it, sparing herself the stress and trouble a short sale would bring her. I'm just not clear how a Chapter 13 discharge works with a mortgage.

Should I contact her BK attorney or would that get her into some sort of trouble? If it would get her into trouble, perhaps she should try and short sale it and let sleeping dogs lie.

Unless one gives up their home (or other secured property in which the payments extend past the discharge) then that secured debt is not discharged in a Chapter 13.

Since she is elderly and disabled it doesn't sound like she has much income that a creditor could go after. I would take her to an attorney, and discuss all of her options. Walking away from the house right now may be the best thing for her.