If you have fallen behind on your monthly mortgage payments and are considering bankruptcy, you may also want to consider qualifying for a home loan modification. Learn how loan modification works in the context of default from the bankruptcy specialists at Lerner and Rowe Law Group.
What is a mortgage loan modification?
A home loan modification is an agreement by a mortgage lender to change the terms of an existing home loan, usually to help the borrower keep up with their monthly payments and avoid foreclosure. The terms of a mortgage loan can be changed or modified in several ways:
- Lower the interest rate on the loan
- Extension of the duration of the loan.
- Switch from an adjustable-rate loan to a fixed-rate loan
- Defer or eliminate the principal debt of the loan
- Allow payment of arrears at the end of the loan.
In many cases, lenders prefer loan modifications over foreclosure on a home, which is more costly for them in the long run. This gives borrowers behind their payments an advantage when negotiating new terms on their existing loans.
Can I Get a Home Loan Modification During Bankruptcy?
Sometimes you can use multiple strategies to help you get out of debt and save your home from foreclosure. In these cases, you may be able to obtain a mortgage loan modification during the bankruptcy process under the protection of an automatic stay. Automatic stays in Arizona take effect immediately when you file for bankruptcy and prevent creditor harassment.
The two most common types of bankruptcy are Chapter 7 and Chapter 13. You may be able to qualify for a loan modification after a Chapter 7 bankruptcy or during a Chapter 13 bankruptcy, but choosing the most strategic and financially feasible type of bankruptcy requires the skill of a bankruptcy attorney who knows the ins and outs. Of bankruptcy proceedings.
Mortgage Loan Modification in Chapter 7 Bankruptcy
Because Chapter 7 bankruptcy focuses on liquidating your assets to pay off your creditors, keeping your home in this type of bankruptcy can be complicated. However, it is not impossible to save your home in Chapter 7 and get a mortgage loan modification.
There is nothing in bankruptcy law that prohibits you from modifying your home loan in the context of a Chapter 7 bankruptcy, but keep in mind that in this type of bankruptcy proceeding, your property will be under the control of a bankruptcy trustee for the length of your case. This means that your servicer must approve any mortgage loan modification.
Your loan lender probably won’t proceed with a home loan modification until it’s clear your servicer doesn’t intend to sell your home to pay off your debts. So you probably won’t be able to secure your loan modification until the end of the bankruptcy transaction or after the fact.
Mortgage Loan Modification in Chapter 13 Bankruptcy
A mortgage loan modification is most often done in a Chapter 13 bankruptcy. The goal of Chapter 7 is to discharge or eliminate as much debt as possible. In a Chapter 13 bankruptcy, on the other hand, the primary goal is to restructure your existing debt into affordable monthly payments over three to five years.
Mortgage loan modifications are more in line with the goals of a Chapter 13 bankruptcy because your home is less likely to be sold to pay off creditors. Like a Chapter 7 bankruptcy, a bankruptcy judge must approve any proposed home loan modification to ensure the terms are reasonable and your proposed payment plans for your other outstanding debt.
Contact Lerner and Rowe Law Group Bankruptcy Attorney
Contact Lerner and Rowe Law Group today if you’re ready to take control of your financial future and want to save your home from foreclosure. Our certified Arizona bankruptcy attorneys can review your financial details in a free consultation to help you determine if loan modification and bankruptcy are suitable for you.