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Loan Modification vs. Bankruptcy

Nothing is more important to your family than your home. However, when hard times hit, it’s hard to maintain a monthly mortgage payment. Once you get behind on your mortgage, it’s difficult to catch up and get back in good standing. Many people have heard of loan modifications, but it is hard to know what this is and if it is a better option than filing bankruptcy.

Loan Modification

A loan modification is a process where a homeowner can apply to have their monthly mortgage payment reduced to be more affordable. The mortgage can be altered in two ways: a reduced interest rate, changing the length of the loan, or adding missed payments to the end of a loan. This modification process is offered by individual mortgage lenders.  The best way to get a loan modification is to call your mortgage company and request an application. This is a process most home owners can get started themselves with no initial costs. Each lender has their own application and process, however, the majority will require documents such as recent tax returns or paystubs. A home loan medication, if approved, can stop a foreclosure, but a homeowner must wait for the bank’s approval. This is the worst aspect of a home loan modification, waiting to find out if the modification was approved and hoping the foreclosure is stopped!  If your home is set for foreclosure auction you MUST be in communication with the bank to know if you loan modification can halt the foreclosure.

Chapter 13 Bankruptcy

If your home is set for a foreclosure sale, the only way to be 100% certain the sale is stopped is to file a Chapter 13 Bankruptcy. At Rainwater, Holt, and Sexton, we regularly file bankruptcies to help save a home after a homeowner has waited and waited to hear on a home loan modification.  A Chapter 13 bankruptcy differs greatly from a loan modification. It will stop a foreclosure immediately and then set a repayment plan. The Chapter 13 plan will create a payment to ensure the regular monthly mortgage payment plus an additional amount is sent to the mortgage company to cure the missed payments on a loan. While the repayment plan provides for your home, it can also help by making your other bills more affordable as the plan can reduce or eliminate other debts such as credit card bills, medical bills and many other types of unsecured debt. Once you complete your repayment plan, a homeowner will restart paying the regular monthly mortgage payment to the lender and your loan will be in good standing. A homeowner can even apply for a home loan modification after they have filed a Chapter 13 plan. Once you start your repayment plan, you can contact your lender and apply for a home loan modification to further reduce your monthly payments. If approved, the our attorneys at Rainwater, Holt and Sexton will file paperwork with the bankruptcy court to finalize the loan modification and amend your payment plan.

A home loan modification is a great process to help homeowners struggling with their monthly mortgage payment. However, if you are facing a foreclosure and loss of you home, please come see us at Rainwater, Holt and Sexton to file a bankruptcy and ensure your home is safe.

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