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Loan Modifications During Bankruptcy

There is nothing scarier for many homeowners than the prospect of losing your home. Luckily, the homestead exemption available for most homeowners allows you to keep making payments on your mortgage during the bankruptcy process, so that you can stay there. For many homeowners, the elimination of excess unsecured debts takes the financial stress off homeowners enough to afford the mortgage again. Unfortunately, sometimes this is not the case.

If you were struggling to afford your mortgage payments before the bankruptcy, this is unlikely to go away just because you file for bankruptcy. On the other hand, you still have a chance to lower your monthly mortgage payment through a loan modification. You can still apply for a mortgage modification under government programs, including the Home Affordable Mortgage Program, while you are in either Chapter 7 or Chapter 13 bankruptcy.

Now that you are in bankruptcy proceedings, you may actually be in a better position to file for a loan modification. Lenders don’t want to lose money, like they might if you lose your home during the bankruptcy proceedings. Your creditors may be more likely to negotiate a modification that re-affirms your debt, thus ensuring that you get up-to-date on your mortgage payments, regardless of how the bankruptcy proceedings pan out.

Applying Successfully for Loan Modifications During Bankruptcy

While this new agreement would invalidate any discharge of your specific mortgage debt, this often is not a risky decision. Since you were intending on keeping your home anyways, this is something you would have to do already. In this case, a mortgage modification would just ensure that you had more affordable rates during the rest of the bankruptcy proceedings and, more importantly, that you could afford the payments in the long term after you get a discharge.

In order to ensure that you do not violate any court orders during your bankruptcy by filing for a mortgage modification, you will need to get your Ohio bankruptcy lawyer to request a release form allowing the mortgage company to discuss your loan with you and negotiate a modification. Make sure to include your bankruptcy lawyer in this process, so that you both ensure the best possible negotiated rate and allow the changes to properly be brought to the bankruptcy trustee’s attention. After all, any modification of your debts (including your mortgage) during the bankruptcy proceedings needs to be first approved by your trustee.

Usually, you should not have any difficulty getting a mortgage modification approved. In Chapter 13 bankruptcy, you may end up paying off a bit more of other loans through your bankruptcy trustee, but when negotiated skillfully, you will be in better shape after the three to five years of the proceedings end. Locking in a lower mortgage rate may be your best chance at enhancing the financial clean slate of your discharge. If you are considering either a loan modification, a bankruptcy, or especially both, you will need the support of an experienced Ohio bankruptcy lawyer. Before you start negotiating without any professional support call us to discuss your case in a free consultation. At Luftman, Heck & Associates, we have years of experience successfully filing bankruptcies to help get our clients back on their feet. Call us today at (216) 586-6600.