Loan Modifications and Bankruptcy
If you are having trouble paying your home loan, a home loan modification may be the solution. With some lenders, it may be possible to re-work your loan terms to a lower payment and/or interest rate, either before or after filing Chapter 7 or Chapter 13. A home loan modification can be an additional step toward debt relief for people filing for bankruptcy relief. I can help you determine whether and how you may be able to combine these types of relief.
It is important to determine whether your trouble making your home loan payments is due to payments on other debt or because the home loan payments are themselves more than you can afford. If the problem is that your payment is more than you can afford,you may be able to modify your home loan by extending the date the balance is due, lowering your monthly payments and lowering your interest rate.
Understanding How Bankruptcy Affects Your Home Loan
It is important to understand that Chapter 7 and Chapter 13 bankruptcy do not provide a tool for lowering your home loan payment or interest rate. The federal Bankruptcy Code was carefully written to make clear that bankruptcy is not intended to allow residential home borrowers to use the bankruptcy process to force the home loan lender to change the terms of the home loan– so you cannot use bankruptcy to make your lender give you a lower payment or interest rate.
However, Chapter 13 bankruptcy does give you the ability to take as much as five years to catch up payments if you are behind on them. For example, if your house payment is $1,000 a month, and if you are six months ($6,000) behind, you could use Chapter 13 to require the lender to let you keep your house by paying $1,100 a month over five years– after which you would be current on your home loan.
In other words, you can’t make the lender give you a lower payment, but you can make the lender give you up to five years to get caught back up. During that time, as long as you make your payments, the lender cannot try to foreclose or take any other action against you or your home. This can be a very powerful tool for keeping your home, and you should understand that it is available to you.
You may request a loan modification with or without filing for bankruptcy. If you file for bankruptcy, your bank or lending institution may be just as likely to offer a reasonable loan modification.
Guidance from a bankruptcy lawyer can help you decide whether filing for bankruptcy protection should be part of your strategy for modifying your home mortgage.
Set up your free consultation today by calling my office at 865-470-4250 or contacting me online. Making sure that homeowners keep their homes is my number one priority.