Can You Combine Bankruptcy and Loan Modification Program

If you are falling behind on mortgage payments and are unsure if you will be able to catch up, you have several options. The most popular choice is between a bankruptcy and loan modification program. 

These options each have their own merits and potential drawbacks. Knowing the differences between them can help you make an informed decision about which might be best for you.

What are the Differences Between a Bankruptcy and Loan Modification Program?

You may have heard that bankruptcy works like a loan modification. While this is true in theory, some people may choose to opt for an actual loan modification program – or choose an additional one – instead.

While bankruptcy is a legal process allowing a consumer to find relief from debt through either discharge or restructuring, loan modification involves changing the terms of a loan. This is not something you can do on your own. Rather, loan modification involves negotiation between you and one or more of your creditors. 

So, which is the right path forward for you? There is no answer that is right for everyone, which is why working with a qualified Florida bankruptcy attorney is so important. 

As mentioned previously, some consumers choose to combine a bankruptcy and loan modification program to get the best possible result. If you are dealing with a large amount of debt that you otherwise are unable to repay – but which excludes your mortgage – this might be a good option for you. Likewise, if you are filing for chapter 13 bankruptcy and are not at risk of having your property seized as part of the bankruptcy estate, you may also want to consider this combination. 

The combination of bankruptcy and loan modification isn’t right for everyone. The right choice for you will largely depend on your unique situation. However, learning more about what loan modification is can help you make the most informed decision possible. 

Diving into Details on Loan Modification Programs

When you apply for loan modification, you are agreeing to work with your lender to find better, more manageable terms for the loan you already have. Any type of changes could theoretically be made, but some of the most common types of changes include: 

• More time to repay the loan. This might mean lower monthly payments, over a longer period. It could also just mean more time to repay the overdue payments that have accrued.
• Reduces interest rate. This would result in lower payment totals and an overall lower amount to be paid.
• Creating a plan for a “balloon payment”. This enables any total that is in arrears – or overdue – to be paid in a single, lump-sum payment at the end of the repayment term. This gives the consumer time to gradually set aside money to ensure that this payment can be made.
• Forgiveness of late fees and other penalty charges that may have resulted from overdue payments.

Again, this list is by no means exhaustive. You and your lender could come up with entirely different ideas for what will make your loan easier to repay. 

It is very rare and unlikely that your lender will agree to reduce the overall total that you owe. However, if you feel that you have a good reason and ample proof, feel free to plead your case with your lender. You just might find them more forgiving than you imagined!

Mortgage Modification

Mortgage modification is one of the most popular forms of loan modification today. It’s little wonder why; people don’t want to lose their homes! 

These programs offer various ways for homeowners to remain in their homes while dealing with debt. As mentioned above, the terms of your modification will depend on the mortgage lender. The program you undergo will often have a specific goal in mind to help you secure that type of relief, including:

• Loan extension. Would extending the period over which you are repaying your loan help you to meet that financial goal? For many people, it would, which is why loan extension is one of the top modification options.
• Repayment plan. A repayment plan is already in place with bankruptcy, especially if you opt for chapter 13. However, regardless of whether you file for bankruptcy or not, you can work with a repayment plan mortgage modification program to do much the same thing. This simply puts your payment plan in a better and more manageable order, so you can work toward getting your loan paid off.
• Rate reduction. Who wouldn’t want to pay less toward their loan? If you can secure a rate reduction modification, you will do exactly that. While this will only reduce the interest rate that you are liable for, that small reduction can have a big impact over time.
• Forbearance. Forbearance has become a popular option in the last few years, due to the surge in need resulting from COVID-19 and the associated financial fallout. This plan allows you to temporarily halt payment on an outstanding loan.

In the instance of forbearance, it is important to remember that the temporary pause in repayment of a loan is just that – temporary. That means that once the forbearance period is over, the payments begin again, typically at the same rates as before. As such, this option offers little relief for consumers beyond some additional time to set money aside. 

Still Not Sure? Let Us Help!

If you are still trying to decide which option is the right fit for you, contact the legal team at the Van Horn Law Group. We can help you make an informed decision that will deliver the best possible results for your unique financial situation. 

We understand that every household, every person, and every story is different. There is no one-size-fits-all answer to debt relief, so why work with an attorney who treats you like every other person they talk to? Give us a call today and let us treat you to personalized service, whether you want legal advice or full-service assistance from start to finish.