There are some people who question whether or not it is possible to apply for a mortgage modification while they are still in bankruptcy. The simple answer to that is yes, if it is Chapter 13. When a person files a Chapter 7 bankruptcy, all of their assets are liquidated in order to pay off the debt that they owe. But under Chapter 13, a payment plan is created to handle that payoff, and the person can keep most of their assets. That means that a lender could modify the mortgage on a person’s Florida home even though they may have filed bankruptcy.
The purpose for a loan modification is for the lender to lower the mortgage payments by altering the mortgage terms. It is not always necessary for the debtor to be caught up on the payments, but it may help the lender to agree. Once bankruptcy is filed on a home, the lender can no longer try and collect missed payments. A loan modification can change this.
In most cases, a lender won’t agree to a loan modification unless the debtor reaffirms the loan. Once the loan is reaffirmed, the lender can once again go after the debtor for missed payments. The debtor will also not be able to discharge any remaining debt at the end of the five-year bankruptcy period, so if he or she cannot pay off the loan, the home could still be foreclosed on.
While a loan modification during Chapter 13 bankruptcy could lower the payments, it also raises the risks of losing the home. It is a good idea for anyone who is considering such a move to discuss it with a bankruptcy lawyer. He or she can explain all of the pros and cons of modifying a loan in Florida and help the client to make the best decision for their particular case.
Source: homeguides.sfgate.com, “Can You Get a Mortgage Modification While in Chapter 13 Bankruptcy?“, July 8, 2017