How Bankruptcy can Affect a Loan Modification


Purchasing a new home is a dream come true for many people in South Florida. No one has a crystal ball which can predict the future. There is often a fine line between living the American Dream and experiencing a financial nightmare. A loss of job, divorce or a series of bad investments can leave many people facing a financial catastrophe and even losing their home. Many people opt for a loan modification to help them make their mortgage payments on time. But what happens if you’re in dire straits and need to file for bankruptcy? Many homeowners choose to modify their loans while filing for bankruptcy. But if you choose this option, it’s wise to get proper advice from an experienced bankruptcy lawyer.

A mortgage lender can provide several different types of loan modifications. If a borrower is forced to file for bankruptcy, the lender can offer a change in the length of payment. This change can allow borrowers to make smaller monthly payments. But that’s just one option. Lenders may also choose to lower the interest rate on the loan. Another loan modification option for those filing is a debt settlement. This process allows borrowers to pay off a portion of their remaining balance in a lump sum. According to the terms of the agreement, the lender will accept that amount as payment in full.

When negotiating with a home loan lender, it’s important to distinguish between Chapter 7 and Chapter 13 bankruptcies. When someone files for Chapter 7, their non-exempt assets are liquidated to pay off creditors. However, their remaining debts are canceled.  Those who file for Chapter 13 will benefit with more protection of their personal belongings. But they must also create a plan to repay their debts over a period of three to five years. Differentiating between Chapter 7 and Chapter 13 is important. Loan modifications usually don’t apply in cases of Chapter 7. The court does provide more leeway for those who file for Chapter 13.

Filing for bankruptcy while seeking a loan modification requires patience. Borrowers will need to enter a trial period to determine which modification plan best suits their needs. Whether it’s the lender or borrower, it’s in everyone’s best interest to construct a modification plan which enables the debtor to keep up with payments. Once a borrower successfully completes the trial period, the modification becomes permanent. But if you’re also filing bankruptcy, a modification isn’t guaranteed. The modification must be approved by both the lender and court to proceed. Permanent loan modifications can even survive through bankruptcy. Bankruptcy courts can order a forced modification to make the borrower’s debt more manageable.

Filing for bankruptcy is a serious decision.  But it’s even scarier when you’re faced with the prospect of losing your home. Don’t go about this process alone. It’s important to get proper representation from a qualified bankruptcy attorney. The legal team at Brodzki Jacobs & Associates, PL in Coral Springs has the knowledge, experience and track record of successfully representing clients dealing with bankruptcy and mortgage modification issues. If you’re considering bankruptcy, contact the attorneys at Brodzki Jacobs & Associates, PL today.

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