Chapter 13 bankruptcy: a viable alternative to loan modification | Reed Law Firm, P.A. | Columbia, Florence, South Carolina

Chapter 13 bankruptcy: a viable alternative to loan modification

Even if you have been denied for a loan modification, it may be possible to save your home with Chapter 13 bankruptcy.

Chapter 13 bankruptcy: a viable alternative to loan modification

Though the housing and job markets are steadily recovering across America, there are still many families struggling to make their monthly mortgage payments. The prevalence of such programs as the federal Homeowner Affordable Modification Program (HAMP) and the Homeowner Affordable Refinance Program (HARP) as well as lender-backed initiatives means that many homeowners – even those who may owe more on their homes than the current market value of the property – have been able to take advantage of lower interest rates and lower payments.

Not everyone “underwater” on their home or with a balloon adjustable rate mortgage has been so fortunate, however. Some people have had their repeated attempts at modification rebuffed by lenders due to a lack of equity in the property. In addition, many of those people who were laid off or terminated during the so-called “Great Recession” of the past several years have been unable to find positions with pay and benefits comparable to the ones they held prior and now find themselves unable to meet monthly mortgage demands.

Just because you haven’t been able to successfully refinance your now-unaffordable home through a loan modification, though, doesn’t mean that a foreclosure is inevitable. If you find yourself stuck between the proverbial rock of unaffordable mortgage payments and the “hard place” of being unable to modify your loan, there is another alternative for you to consider: a Chapter 13 bankruptcy filing.

How Chapter 13 can help

Often, homeowners unable to qualify for a traditional refinance or modification program find themselves excluded because of equity or income parameters. Those same issues are treated much differently in a bankruptcy filing, though. Some steady income is a necessity for a Chapter 13 filing, since Chapter 13 is better known as a “repayment bankruptcy” and involves consolidating eligible debt into a single monthly payment for a set period (usually between three and five years), after which time remaining non-exempt debt is discharged. However, you are less likely to be disqualified in a Chapter 13 for having too much or too little income, as is often the case in loan modifications. Equity in the home, whether positive or negative, is also much less of a factor in Chapter 13.

Simply freeing up money that would have been going to other debts like credit cards or medical bills is enough to let many homeowners hold on to their property. Bankruptcy can also discharge subsequent mortgages, something which will put the homeowner in a much better financial position once the bankruptcy has been completed than he or she was beforehand. Some lenders are even more inclined to work with borrowers who have filed bankruptcy in order to stave off the legal hassles associated with a foreclosure and might be willing to consider a post-bankruptcy-filing mortgage modification even if the homeowner was previously denied.

Do you have questions about how a Chapter 13 bankruptcy could help you? Would you like more information about how this could be a viable alternative to a traditional loan modification? For the answers to these and other debt relief questions, speak with an experienced bankruptcy attorney today.

Keywords: Chapter 13, bankruptcy, loan modification, mortgage modification