Chapter 13 bankruptcy has multiple unique features that make it a valuable process. For example, its higher income limits make it accessible even to successful professionals, while its repayment plan allows those with substantial assets to take control of their debt without giving up everything they own.
Another benefit of chapter 13 bankruptcy is the opportunity to negotiate your existing debts with your creditors. You will be in a position to revisit and renegotiate the terms of your mortgage, which might make it easier for you to stay in compliance with payments.
Renegotiating your mortgage and requesting a modification could make it easier for you to remain up-to-date on payments in the future. What are some of the modifications you might request?
A reduction in your interest rate
People pay thousands of dollars to buy points before their closings to reduce the interest rate on their loans. Even a tenth of a percentage could translate to thousands of dollars in interest over the repayment period of a mortgage.
If you have held off refinancing because of your credit issues, then you might benefit from asking for a modification that reduces the interest rate on your mortgage. A lower interest rate might mean a lower monthly payment and more wiggle room in your budget.
A change in the duration of the mortgage
If you have made payments for the last seven years on a 30-year mortgage, in theory you should only have 23 more years’ worth of payments to make. If you struggle to make your payments currently, extending how long you will keep making payments might be the solution.
Adding several years to your mortgage repayment period can spread out what you owe over a larger amount of time and potentially drop your payment by as much as several hundred dollars a month.
A change in the kind of mortgage
Do you currently have a variable-rate mortgage with a balloon coming due in the future? You may want to lock in a specific interest rate and payment amount for a fixed-term mortgage now. That way your ability to keep the house doesn’t depend on whether you qualify for a new mortgage in the next few years. You will also be better able to predict what your mortgage will cost when the interest rate won’t fluctuate in the future.
Understanding how loan modifications might help you can help you push for the best solutions in a Chapter 13 bankruptcy filing.