When to Modify Loans, When to File Bankruptcy


If you are facing imminent foreclosure on your property, you may be weighing your options right now. There are two things you can do if you want to keep your home. First is to modify your loan and second is file a bankruptcy petition. Although every person’s case is different, I would like to suggest some simple guidelines to help you decide one way or the other.

The most crucial aspect to consider is timing. If you have other pressing financial issues, you may not have the time to arrange for a modification of your loan. Even to get in touch with the right person who has the power to modify your mortgage and avert a foreclosure may be difficult, especially if you want to do so immediately. Then there is the time it takes to negotiate the terms of a modification. The modification process may take a long time and in the meantime, the foreclosure may move forward.

Another aspect to look at is the state of your mortgage. Most banks will only consider a modification of your mortgage if you are severely delinquent in your payments. This is simply because the bank would want to stick to the original agreement they made with you. A modification means both sides will have to compromise on the original agreement and often it is the bank who gives more than the lender. So if you are only 2 or 3 payments behind, it is unlikely that you will be able to secure a loan modification.
In view of this, even if you want to modify your loan with the bank, the best thing to do is to have a back up plan that you can put into action at very short notice. The best back up plan in your case is bankruptcy.

Filing a bankruptcy petition is not subjected to all the considerations that a loan modification is. And do not think that when you file a bankruptcy petition, you will lose your assets. The reverse is true. Bankruptcy helps you keep your assets. In fact, bankruptcy can stop foreclosure immediately, unlike a loan modification.

The type of bankruptcy I am talking about is Chapter 13 bankruptcy. Chapter 13 bankruptcy is also known as the workmen’s bankruptcy. Under this type of bankruptcy, your debts are consolidated and a payment plan is drawn up to enable you to pay off your debts while keeping your home.

If you want to discuss the matter of loan modification and bankruptcy further, call us at (813) 200 4133 for a free consultation.


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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