If you are faced with crushing debt and dwindled resources, one of your strongest motivations is to keep your home from foreclosure. A Chapter 13 bankruptcy can help you do that by allowing you to pay off mortgage arrears over several years. But that does not relieve you of the obligation to meet your regular monthly payments going forward. Failure to do so could again put you in danger of default. The best way to prevent that potential hazard is to seek a mortgage modification. 

You may have begun applying for a modification prior to filing for Chapter 13, or you may have entered a modification agreement that is not to your benefit. For example, the interest rate might have been lowered but the term of the loan might have been extended, thereby increasing your total interest. Whether or not you obtained a pre-filing modification, there are distinct advantages to pursuing a new one during Chapter 13.

When you file a Chapter 13 bankruptcy, you get the benefit of the automatic stay, which halts creditors from proceeding with collection remedies. That includes preventing mortgage foreclosure. The automatic stay provides critical time for you to work out a plan for partial repayment of your debts. That can give you breathing room to resume your monthly mortgage payments.

Another advantage of mortgage modification during Chapter 13 is that you can ask the court to permit loss mitigation. That typically means a court order allowing you to make reduced monthly payments during the mortgage lender’s review of the modification request. This remedy prevents you from falling further behind on mortgage payments while the lender is deciding. Moreover, it ensures that the lender will act promptly and in good faith, which is likely to result in a mutually beneficial modification.

The Chapter 13 case also works to your advantage by reducing your total debt liability, which makes you a better risk as a borrower. Only a portion of your total unsecured debt is repaid in Chapter 13, with the rest of it being discharged once the plan ends. As long as you are steadily employed, you can present yourself as a creditworthy applicant, just as though it were a new loan.

An experienced Chapter 13 bankruptcy attorney can guide you through the mortgage modification process while continuing to represent you in court. Once a modification is in place, you can be back on the road to financial solvency and to rebuilding your credit rating, so that you can emerge debt-free without losing your home.

The Law Offices of James C. Zimmermann represents residents of New Jersey’s Sussex and Passaic counties in Chapter 13 and other bankruptcy and debt relief matters. Call us at 973-764-1633 or contact us online to arrange a free initial consultation.