One of the major concerns regarding bankruptcy is if people can keep their homes. People filing for bankruptcy are often victims of adjustable interest rates, falling home prices, as well as a bad economy that has created high percentages of unemployment not just in Florida but across the entire nation. Homeowners begin to use credit cards, savings, and other debt to continue living. Many debtors find themselves in the midst of trying to avoid bankruptcy while also looking into loan modifications that will inhibit foreclosure.
A modification on a mortgage rewrites the terms of the mortgage. It can lower high interest rates and reset the payment schedule so individuals pay smaller amounts a month over a longer period of time. This way, it is more manageable for the debtor and increases the chances of avoiding foreclosure.
For those filing Chapter 7 bankruptcy, they need to keep in mind that once the automatic stay is in place, the mortgage lender is not able to discuss anything regarding loan modifications. Therefore, debtors should discuss loan modifications prior to filing for bankruptcy.
For debtors filing for Chapter 13 bankruptcy, however, it is different. They can get loan modifications while in the middle of filing for bankruptcy. But the thing to remember is this – modification will not reduce the amount owed, only makes it easier to maintain monthly payments. As well, the modification will not be applied to any past due balance, only future payments. Therefore, those filing for Chapter 13 will still have to pay back the full amount owed in a repayment plan and the modification is applied to future payments.