When their debts are spiraling out of control, many homeowners worry about protecting their homes from foreclosure. A lot of times, a temporary bump in the financial road can lead to missed mortgage payments – and that can be a lot to catch up, even once you have money coming in again regularly.
Should you ask for a loan modification to try to get right with your mortgage holder? Or, is Chapter 13 bankruptcy a better option? Here’s what you need to consider:
Modifications are purely voluntary on the lender’s part
If you’re in danger of foreclosure, a loan modification that stretches out your repayment terms, reduces the financial penalties you’ve accrued for missing or late payments and – possibly – a reduced mortgage payment can be a dream come true. Unfortunately, modifications may just be wishful thinking. Your lender is under no obligation to stop the steady approach to foreclosure and give you a modification, instead.
Plus, a modification request may not resolve all your problems. The odds are high that you may also be behind on your property taxes, and those may need to be handled outside the mortgage.
A Chapter 13 modification request is under the trustee’s control
If you file for Chapter 13, however, that automatically stops a foreclosure process. That can give you the breathing room you need to make informed decisions about your mortgage. It may also give you better leverage and more options.
Once you’ve filed for bankruptcy, you can propose a repayment plan that will allow you to remove any past-due mortgage amounts and catch up on your property taxes or homeowners association fees. You can also restructure other debts that may have gotten overwhelming, such as your credit cards, car payment, medical bills and loans.
Because the trustee is in charge of a Chapter 13 repayment plan, they can actually order the bank to accept the plan you propose, so long as it is reasonable. Once you’ve made it through the Chapter 13 repayment plan, you’ll be on secure financial footing.
When your debts are piling up and the bills aren’t getting paid, it’s scary. Fortunately, you do have legal options available.