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Chapter 13 and mortgage modification

A frequent topic of discussion in relation to mortgage problems and bankruptcy is how bankruptcy may help you obtain a mortgage modification. Because mortgages are not subject to a "cram down," meaning the loan would be reduced to the current value of the underlying property, you have to be able to afford your current mortgage payments for a bankruptcy to be helpful.

The basic scenario is that you have fallen behind in your mortgage payments, and your lender either is refusing to offer a mortgage modification or is dragging their feet in working with you. By filing a Chapter 13, you can prevent the lender from attempting to foreclose on your home, and then use the plan payments to regain your financial stability.

Another benefit of a Chapter 13 is that you can pay any mortgage arrears as part of the plan payments. A Chapter 13 plan can last between three and five years, and by spreading those arrears out over that period may provide you with enough flexibility to be able to afford both your current mortgage payment and your arrears. During your Chapter 13, a lender may be more willing to work with you to obtain a mortgage modification.

You may also be able to reduce some of your unsecured debt by filing a Chapter 13, and this could free up enough money to allow you afford your home. Because a Chapter 13 involves essentially the creation of a budget (your Chapter 13 plan payments) in requires an evaluation of your entire financial circumstance.

A bankruptcy attorney can help you examine your finances and determine if you can assemble a viable Chapter 13 plan. A successful plan can help you keep your home and recover your financial health.

Source: FoxBusiness.com, "Will Bankruptcy Help Mortgage Modification?" Justin Harelik, June 11, 2013

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