Chapter 13 Bankruptcy vs. Loan Modification

You love your home and worked hard for it, so the last thing you want is to be out on the street because you couldn’t meet mortgage payments.  Fortunately, there are options available to prevent losing your home to foreclosure and get you past this crisis.

Bankruptcy, a legal way to have many debts forgiven, can put you on the road to financial recovery.  If you’re a good candidate for bankruptcy, filing can keep creditors from harassing you and seizing your possessions, allow debts to be forgiven, and provide a way for you to keep your home and other assets and begin to rebuild your life.

Loan modification is another option. When you modify your mortgage, you may be able to have your lender change the terms of your loan to make it more affordable. The lender may reduce your interest rate, forgive some of your principal balance, lower your payment, or extend the length of your loan.

Both options involve complicated processes and each has advantages and disadvantages, so it pays to have a knowledgeable attorney on your side. The skilled and seasoned Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer understand that financial problems can happen to even the most well-intentioned people.  We offer a free consultation to evaluate your financial situation by looking at your income, your debts and your goals and developing a financial-recovery plan that’s best for you.

Mortgage Modification

To avoid dealing with foreclosure, loan lenders often will agree to modify the original loan agreement in order to assist those struggling with their payments. Lenders might lower interest rates or extend the final due date of the loan to make monthly payments lower and enable you to stay in your home.

However, there are strict guidelines and fine-print terms and conditions associated with loan modifications. In deciding if a loan modification is right for you, you should consider:

  • Affordability – if lenders feel you can’t afford the new payments, or if you have additional debt such as automobile or student loans, you may not qualify.
  • Are you current in your mortgage payments? – You qualify for loan modification only if you are behind in your payments. It can take months for your case to be considered, so if your application for a loan modification is denied, your debt may have increased to where you will be faced with foreclosure.
  • The real cost of the loan modification. – You will have lower mortgage payments, but extra charges such as a longer period of payback, additional interest, and new loan costs and fees can add up.

Bankruptcy

An alternative to loan modification is to file for bankruptcy to protect your assets.

Chapter 13 bankruptcy is known as the “wage earner” bankruptcy. You may be eligible for this plan if you have a steady source of income, financial problems that are temporary, and a desire to repay some of the debt in order to keep an asset such as a car or a house.

Chapter 13 allows you to consolidate your payments to avoid fees and fines and to repay a portion of your debt affordably over a three- to five-year period through a court-approved repayment plan.  Plus, the automatic stay provision of Ohio bankruptcy law means that the phone calls and letters from your creditors will stop during this time.  If you successfully complete the court-approved payment plan, the debts covered by the plan are discharged.

Benefits from a Chapter 13 bankruptcy include:

  • You don’t have to get behind on and accumulate mortgage payments to file.
  • If you have already missed payments and are at risk for foreclosure, Chapter 13 gives you a chance to “catch up” and stop a foreclosure.
  • You can use future income to repay your creditors and keep your property.
  • Other unsecured debt, such as that from credit cards, will be included in the plan and can be discharged through bankruptcy, if eligible.
  • There is special treatment for second mortgages in Chapter 13 that can sometimes reduce or eliminate those debts.

Loan Modification under Chapter 13

Chapter 13 and loan modification are not mutually exclusive. Modification often works best as part of a Chapter 13 bankruptcy when debtors are protected by the bankruptcy stay. While loan modification outside of bankruptcy is voluntary, lenders are required to make the modifications that are approved by a bankruptcy court.

However, there are minimum legal requirements that must be met before the bankruptcy court will accept the reorganization plan. For one thing, all loans must be paid in full during the term of the plan, which cannot be more than five years.

Also, there are restrictions on modifying mortgages within bankruptcy.  A Chapter 13 plan may not modify secured debts on the debtor’s principal residence. This has been interpreted to mean that mortgages that are not secured, such as second or third mortgages on property worth less than the balance of the first mortgage, can be modified and eliminated.

In addition, restrictions on home mortgages do not apply to:

  • Rental property
  • Mobile homes
  • Home loans that are secured by other real estate or personal property not the principal residence
  • Liens against the principal residence such as tax liens, judgment liens, or mechanics liens
  • Liens for loans that will mature before the end of the reorganization plan

Contact Us For Support and Guidance

Each person’s financial problems are unique, so it’s important to assess your individual situation to decide which path to financial recovery will work for you.  The skilled Ohio debt-relief lawyers at Fesenmyer Cousino Weinzimmer are dedicated to helping you through the maze of personal bankruptcy and/or loan modification so you can obtain financial freedom.  We offer a free initial consultation and careful evaluation of your individual situation to help point you in the right direction.

During your consultation, we will evaluate your entire financial situation, make sure you are aware of all your options, and help you decide on the path to a brighter future.  We understand what you are going through and will walk you through the process.

Delaying can only worsen your situation, so call the Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer today!  Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what debt relief solutions will work best for you.

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