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Cash-Out Refinance to Buyout Chapter 13 Bankruptcy
Do you know anyone who can do Cashout Chapter 13 Buyout. January 2025 filed, four late payments, in the past 12 months. Value is $315,000, 80% cash out on current FHA loan, owe $30,000 for Buying out Chapter 13 Bankruptcy balance. Owes $178,000. Pennsylvania.
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You won’t be able to find an authentic FHA cash-out Chapter 13 buyout if you have had four mortgage lapses in the past year. You would need a non-QM/DSCR-type cash-out, or a 12-month period with no housing payment history, before considering the FHA option again.
This is how it looks based on guidelines, options, and recommendations on how to structure it or who to shop it to.
FHA Cash-Out Rules
- An FHA Cash-Out refinance prohibits a borrower from having any mortgage payments that are thirty (30) days late within the past twelve (12) months.
- This means a borrower may not have a single missed payment in the prior twelve months.
- According to the HUD handbook and other lender instructions, a borrower is ineligible for a cash-out refinance if the borrower has any late payments on a mortgage in the prior twelve (12) months.
- FHA also stipulates that there be a minimum of six (6) months of payments on the loan being refinanced and that there be a 210-day seasoning period from the first payment due on the loan to the first payment on the new loan.
If an applicant has four (4) lates in the past twelve (12) months, a cash-out refinance of the Chapter 13 balance via an FHA loan is not permissible, even if the automated underwriting system provides an approve recommendation, due to FHA’s credit policy.
Late Payments and Refinances
- Under certain late-payment scenarios, the FHA requires that the loan be manually underwritten, and most aggregators will not purchase manually underwritten FHA loans with recent payment lates, especially cash-out loans.
- For cash-out refinances, there are other investors that will also deny a loan if there has been any recent delinquency in the borrower’s mortgage payments in the prior twelve (12) months, even aside from FHA’s rules.
This means that even if an FHA lender were willing to approve a cash-out refinance, restrictions imposed by other lenders in the market would prevent an FHA loan refinancing from being executed.
Chapter 13 Status
- Generally, FHA is more accommodating of Chapter 13 bankruptcy. A borrower may obtain a purchase loan or a cash-out refinance, but recent late payments on the mortgage remain an issue.
In this case, Chapter 13 is not the main issue; recent late payments on the mortgage are.
Numbers in your scenario
In the case example (Pennsylvania):
- The current value is around $315,000.
- The current FHA balance is around $178,000.
- The estimated cash-out is $252,000 gross at 80% LTV, with around $30,000 set aside to pay off the remaining Chapter 13 balance.
From an LTV standpoint, this is completely reasonable; the concern is solely credit/seasoning, not equity.
Realistic paths to a Chapter 13 Buyout1. Cash-Out Non-QM Refinance
- Non-QM lenders will generally allow recent mortgage lates and will cash out to pay off a Chapter 13 plan but will charge a premium.
- In PA, look for items such as: “non-QM cash-out to pay off Chapter 13,” “late refinance,” or “bank statement/expanded credit cash-out.”
That method will buy out Chapter 13 (trustee pay-off) now, at the expense of a higher interest rate and a more restrictive DTI/equity.
2. DSCR or Investor-Type Loan (if Not Owner-Occupied)
- For rental or mixed-use properties, DSCR cash-out programs can disregard personal DTI, favoring rental coverage, and are usually more lenient on recent lates.
- These programs commonly allow cash-out for debt consolidation, including payoff of a Chapter 13 plan, as long as the max LTV and DSCR are met.
3. Wait for 12 Months of Clean Housing History
- If the borrower maintains on-time mortgage payments for 12 months, then the borrower would comply with the FHA 0×30 in 12 for cash-out.
- During that time (in early 2026, depending on the date of the last late payment), a standard FHA cash-out could be considered again, or even a conventional loan, if scores and ratios permit.
Positioning this with lenders
Here’s how to present this when you shop it or write it up.
- Highlight the purpose. Frame it as “Cash‑out to pay off Chapter 13 and consolidate high-cost obligations” versus standard cash‑out.
- Many non-QM lenders show an appetite for BK payoff loans.
- Be honest about your housing history.
- Four lates in the past twelve months will eliminate agency cash‑out; however, this will assist non-QM in routing to the correct option.
- Request specifically: “Pennsylvania non-QM cash‑out refinance for owner‑occupied FHA with recent lates, Chapter 13 buyout.” This is how many wholesalers will categorize the loan.
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