Individuals who are experiencing a sudden drop in income or a sharp increase in their debts may find themselves falling behind on their financial obligations. Eventually, they may even miss mortgage payments. People at risk of foreclosure may go to great lengths to protect the investments they have made in their primary residences. A bankruptcy filing when finances feel out of control could help someone protect their investment in their home. The automatic stay gives them temporary protection from creditor collection efforts.
Those filing for bankruptcy have several options. In a Chapter 13 bankruptcy, in particular, renegotiating certain financial obligations can be part of the process. People may be able to modify their mortgages. Any of the following three common modifications may potentially benefit those worried about foreclosure.
Interest rate reductions or rate locks
In some cases, individuals struggling with mortgage payments may have a variable interest rate on their loans. They may want to modify the loan to secure a fixed rate so that payments are predictable in the future. Other times, someone may have a higher interest rate and could be able to negotiate a lower rate based on current rates offered for mortgages.
Repayment period extensions
Most mortgages have a 30-year repayment period, although some mortgages are for shorter durations. Someone who has fallen behind might be able to extend their mortgage repayment period to reduce their monthly payments. That move may mean it takes longer to become the only party with an interest in the home, but it could also help someone keep their budget balanced.
Addressing missed payments
Oftentimes, mortgage companies expect that someone who has missed payments should make up all of those payments immediately to bring an account back into good standing. That expectation could be prohibitively costly for the borrower. It may be possible to move missed payments to the end of the mortgage by rolling them into the principal balance of the loan. This approach may slightly increase the timeline for repaying the loan but can take a lot of the pressure off of the property owner.
Modifying mortgages during bankruptcy proceedings can help people regain control over their budgets and protect their most valuable assets. Filers who request the right modifications may find it easier to make their payments consistently in the future.
