There are multiple reasons why someone might choose to pursue a Chapter 13 bankruptcy instead of a Chapter 7 filing that would produce a faster discharge. They may earn too much money to qualify for Chapter 7 proceedings or worry about the risk of asset liquidation.
For some parties, it is the extra focus on restructuring debts that makes Chapter 13 proceedings seem like the best option. Chapter 13 bankruptcy often involves a process of renegotiating certain debts to allow for a workable budget during the multi-year repayment plan.
Those who have fallen behind on mortgage payments may worry about foreclosure and the loss of the equity they have spent years accumulating in their homes. Negotiating with the lender to restructure a mortgage is a common step during Chapter 13 bankruptcy proceedings. These are some common mortgage modifications that people seek during bankruptcy.
1. A delay in making missed payments
If someone has missed several months of mortgage payments, they may not have enough money to catch up on those past-due obligations even after eliminating some of their unsecured debt. The requirement to pay several thousand dollars to bring a mortgage back into good standing might be too much for a filer’s household budget.
A modification could include terms that allow the borrower to move those missed payments to the end of the repayment period so that they can catch up eventually. Predictable monthly payments are necessary for people to remain compliant without straining themselves financially while they are subject to a strict repayment plan.
2. A longer repayment period and lower payments
One of the easiest ways to make a mortgage more manageable is to extend how long someone has to make payments. Although they will technically pay more in interest, what they pay per month will go down. Therefore, it is an arrangement that is beneficial for the company mortgage lender and for the borrower. By giving someone more time in which to make mortgage payments, lenders can make their monthly obligations more reasonable.
Although there is support for those pursuing mortgage modifications as part of a Chapter 13 bankruptcy, many people still find the process to be quite intimidating. Getting professional help often benefits those who are preparing for a Chapter 13 bankruptcy and the negotiations it involves.