A loan modification is when you and your mortgage company agree change the terms of your mortgage loan. It could entail any of the following changes: a reduction of interest, reduction of principal, or putting the arrears on the back end of the loan.
A lot of people are concerned that if they file a Chapter 13 or Chapter 7 bankruptcy, they will not be able to get a loan modification with their mortgage company. This is usually not the case. In fact, our office sees a lot of mortgage companies sending our clients loan modification applications after a bankruptcy is filed. It may even be that after a bankruptcy is filed the mortgage company realizes that the debtor is not in a financial position to maintain the current agreement and thus, they may be even more willing to work out a modification agreement. You can file a bankruptcy and still be granted a loan modification. Once the loan modification terms have been determined by the mortgage company, that information is submitted to the bankruptcy court for approval.
If you are currently in negotiations with your mortgage company for a loan modification and considering bankruptcy, you will definitely want to consult with us on how to proceed.
Quite often people who are considering bankruptcy are worried that they will lose everything if they file. The answer is “no” you will not lose all of your belongings if you file a bankruptcy. Whether you file a Chapter 13 or Chapter 7 bankruptcy you are still allowed to keep most to all of your regular household items. There is no problem with keeping your typical household items such as: television, furniture, appliances, typical tools, computer, etc. The exception to this is when you have a loan on these household items. Depending on whether you file a Chapter 7 or Chapter 13 will determine if you continue making payments after the bankruptcy is filed (Chapter 7) or if the payments are calculated into your bankruptcy plan payment (Chapter 13.)
A Chapter 13 bankruptcy protects nearly all of your assets. The exceptions are items that are considered “luxury” items such as: boats, atv’s, campers, elaborate jewelry, etc. If you are making payments on any of these types of items then you would be required to surrender the property. If you own the property then you may be allowed to keep it in a bankruptcy but it will affect the amount you pay into your bankruptcy.
A Chapter 7 bankruptcy only allows you to have a certain amount of equity in major assets such as house, a vehicle, boat etc. If you have little to no equity in these assets, you have the option of continuing to make the loan payments after your Chapter 7 bankruptcy is filed. If you exceed the allowed equity amount for these items, you would be required to turn over the property to the Chapter 7 Trustee. For example, each debtor is allowed to have $3,000 equity in a vehicle. This means that if you own your vehicle and it’s worth more than $3,000 then it is likely the Chapter 7 Trustee would require the vehicle to be turned over to the trustee. If you have a loan on the vehicle but still have $3,000 equity then it would be the same situation. For example, if you owe $12,000 on your vehicle loan but it is worth $18,000. Then there would be more than $3,000 equity. Keep in mind that if you are married and have two vehicles, you are each allowed $3,000 equity for a vehicle.