How Can Bankruptcy Affect Loan Modifications?

Bankruptcy can affect many things in your life, including loan modifications. Depending on several factors, you may still qualify for a loan modification, even if you have filed for bankruptcy. If you have fallen behind on your mortgage or loan payments, a modification can make your debt easier to handle and allow you to keep your home or other assets.

Bankruptcy & Loan Modification

Bankruptcy often takes one of two forms for individuals. A Chapter 7 bankruptcy is a liquidation, in which a trustee is appointed to sell off any non-exempt assets to pay your creditors. If your property is exempt, you can request a loan modification and, if approved, make the modified payments to keep the house. If you apply for a modification in between filing for bankruptcy and your discharge, the lender must consider your application. If you apply after your debt has been discharged, the servicer must consider your application without requiring you to reaffirm your personal obligation on any discharged debt related to your loan.

A Chapter 13 bankruptcy is a court-supervised repayment plan, which gives you 3-5 years to repay your creditors. A loan modification is much more useful in this situation, since you will be able to keep the property. You may even be able to pursue a loan modification for an investment property, as well as your home. You must disclose your intent to modify your loan if you have not done so by the time you file for bankruptcy. If you apply for a loan modification after filing for bankruptcy, your lender must cooperate to obtain court approval. You cannot incur any new credit obligation without court approval.

Eliminating Mortgages

You can also use other methods to eliminate your mortgage debt. “Cramdown” and “lien stripping” are two methods that can reduce or eliminate mortgages in bankruptcy. Cramdown can reduce the mortgages on residential investment properties to the actual value of the property in Chapter 13 bankruptcy cases. This cannot be used on other properties, such as commercial properties or your home. Lien stripping removes second mortgages on any residential properties, including your home, where the first mortgage exceeds the value of the property. It cannot reduce the mortgage amount, only remove it entirely, which prevents it from being used in Chapter 7 bankruptcies.

Speak to an Experienced Brevard County Bankruptcy Attorney - (321) 320-6088

At The Buchalter Law Group, we are here to help you with your bankruptcy in any way we can. Our Brevard County bankruptcy lawyers can help you find ways to ease your debt and make your bankruptcy simpler. With more than 35 years of collective legal experience, we are ready to tackle even the most complex cases. Our team offers compassionate, personalized legal service to help you gain a fresh financial start, and escape the burden of your debt. We are passionate about helping our community handle their complicated financial issues, and avoid serious financial turmoil with tailored solutions.

Learn how we can help with a free case evaluation. Contact our team at (321) 320-6088.

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