By the time someone files for bankruptcy, they may have fallen behind on many of their financial obligations. Some people wait until they receive legal service from a creditor or know that they are at risk of foreclosure proceedings before they act to take control of their debt.
Foreclosure is a particularly frightening prospect, as it can mean the loss of everything someone has invested in their primary home. A personal bankruptcy filing can help someone avoid foreclosure at least temporarily by preventing more collection activity.
However, for those pursuing a Chapter 13 bankruptcy in particular, the possibility of a loan modification may be one of the biggest benefits of the bankruptcy process. Why are loan modifications so helpful for those who have fallen behind on their mortgages?
They can get into good standing while on a budget
Especially in a Chapter 13 bankruptcy where someone’s income will primarily go toward repaying their unsecured creditors, it is important for someone to get their mortgage back into good standing as quickly as possible. If they have missed several payments, they could be on the cusp of foreclosure.
Loan modifications can help people bring their accounts back into good standing and reduce the risk of foreclosure in the future. Lenders may adjust someone’s interest rate, extend how long they will make mortgage payments and possibly reduce their monthly payments as well.
Those who have missed multiple payments can also use a modification to move that past-due balance to the end of the repayment period instead of serving as a major financial barrier to bringing the mortgage back into compliance.
There is support for homeowners who need help
There are numerous ways to push for appropriate loan modifications in a Chapter 13 bankruptcy filing. In fact, in some cases, the courts may even offer mediation support when the lender is resistant to working with the person filing.
Those worried that their home or other most valuable assets could be at risk in the near future may benefit from filing bankruptcy to rework their budgets and potentially adjust their financial obligations. Pursuing a loan modification as part of a broader bankruptcy strategy can help those who want to preserve their resources while taking charge of their debts.