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How mortgage modification works in Chapter 13 bankruptcy

If you are struggling to make your mortgage payments, you might be afraid you will lose your home. Bankruptcy is often a scary term, but it does not have to be. If done correctly, declaring bankruptcy can help you modify your mortgage loan.

The process might sound intimidating and complex, but it is easily understood with the right help. Keep reading to learn how loan modification works in a bankruptcy situation. 

The automatic stay with Chapter 13

Your best bet for modifying your loan during bankruptcy is by declaring Chapter 13 bankruptcy. When you file for Chapter 13 bankruptcy, an automatic stay goes into effect and temporarily stops your creditors from collecting debt. This gives you enough time to keep your home and apply for a loan modification.

Dealing with arrears

As the debtor, you will propose your debt repayment plan to your trustee. This plan might include debts such as income taxes, child support, secured car debt and arrearages you owe to the mortgage company. Often the mortgage arrears are included in the modification. To avoid paying extra money to your mortgage company, you will want a bankruptcy attorney to file a motion to remove the arrears from your Chapter 13 repayment plan.

Depending on how many other debts you wish to resolve through Chapter 13, such as a car payment, income taxes or child support, you may find that the plan is no longer helpful to your situation. You might choose to convert it to a Chapter 7 case or dismiss it.

Make an informed decision

Declaring bankruptcy is not something to take lightly. While you do not have to feel embarrassed or ashamed about doing it, it is a big financial decision. Make sure you know exactly what you want to accomplish before following through. It is a great idea to contact a bankruptcy lawyer for advice.

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