Chapter 13 is a form of bankruptcy in which unsecured debts are partially paid off over a period of years, with the remainder discharged once the case is complete. However, most Chapter 13 cases involve one or more secured debts, which remain in force. For example, a home mortgage loan is secured by a lien on the house. In many cases, Chapter 13 debtors are in arrears on their home mortgages. Fortunately, relief from the home loan may be available by means of a modification.
If you’ve filed for Chapter 13, your mortgage arrears are made part of your repayment plan, but you still are obligated to make mortgage payments going forward. The lender may agree to renegotiate your mortgage terms rather than risk a default. This may include reducing the interest rate and/or increasing the duration of the loan in order to make the monthly payment more affordable. Also, you may seek to have the lender waive certain fees and costs such as late fees and attorneys’ fees. Some borrowers ask for a period of making no payments to give them time to sell the property.
Of course, you can try to renegotiate a loan without filing bankruptcy. That said, negotiation during a Chapter 13 case offers you these advantages:
- A Chapter 13 filing temporarily suspends all collection efforts. A home lender might initiate a foreclosure action, but the bankruptcy filing slows the process substantially.
- Filing bankruptcy helps get the creditor’s attention. Home lenders oftentimes ignore informal requests for loan modifications. Mandatory court hearings force the lender to respond to inquiries from the debtor.
- An approved bankruptcy plan may give you time to pursue opportunities to sell the property or to improve your financial position.
If you and your lender are able to reach an accord on modification, the judge in the Chapter 13 case must review and approve the agreement.
A debtor seeking loan modification should consult with an experienced Chapter 13 attorney. In some instances, the financial institution holding the mortgage will not easily accept substantial changes. The lender may look just to have past due amounts and late fees added to the ‘back end’ of the loan. In essence, this just adds a period of months or years to the existing loan. This may or may not be an attractive option depending upon your financial circumstances.
With six offices in the Atlanta, Marietta and Athens areas, Jeff Field & Associates handles bankruptcy and debt relief matters for clients throughout the region. Our Georgia attorneys give each client the time and attention needed to guide them through their options. If you are having debt problems or are facing foreclosure, feel free to contact us online or call 404-381-1278 for an initial consultation.