How to Negotiation a Mortgage Modification During Chapter 13

Whenever you are faced with the prospect of bankruptcy, it is a scary time for you and your family.  Financial instability is one of the leading causes of stress in today’s world, and the stress is compounded when the financial instability that has led you to bankruptcy also threatens to make you lose your home and everything that you have worked for.  Luckily, there is a type of bankruptcy known as Chapter 13 bankruptcy, which allows you to have some of your debts discharged while also making a plan to repay your debts over a period of time ranging from three to five years. Another major advantage to chapter 13 is you get to keep your home and major assets.  So, how does a chapter 13 mortgage modification work?

Understanding Chapter 13 Mortgage Modification

• The first step to negotiating a mortgage modification with your lender in a Chapter 13 bankruptcy is to contact the lender as soon as possible and let them know that you are having trouble. 

Indicate that you want to continue to repay your debts and keep your home and that you do not intend to default on your mortgage.  Most lenders will work with you because if they do, they stand a better chance of receiving what was owed on the home initially than they do if they foreclose and sell the home at auction or otherwise liquidate it.  Many states are starting to pass laws requiring that mortgage companies work with you in negotiating mortgage modifications in a Chapter 13 bankruptcy.

• Another excellent point to keep in mind is to remember that a Chapter 13 bankruptcy does require repayment and is only for a fixed period of time. 

Don’t ask for more than you are likely to receive in terms of modification from your lender, and realize that any modifications are temporary and that the money you borrowed will have to be paid back in some form or another.  The most common modifications involve extending the terms of the loan to lower the payment (turning a 30 year mortgage into a 40 year mortgage, for example), and lowering the interest rate paid on the loan temporarily during the three to five year repayment period so that you can make the payments at a lower rate. 

Getting Help

When facing bankruptcy and trying to negotiate a mortgage, it is important you get the help of a qualified lawyer early on in the process. By working with your Chapter 13 bankruptcy attorney as well as being reasonable in what you hope to gain from the mortgage modification, you will be able to successfully negotiate a mortgage modification that will allow you to keep your home and lower your bills until you can get back on your feet.