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Can I Modify My Mortgage In Bankruptcy?

The single most expensive payment most families have each month is their house payment. A good rule of thumb is to spend no more than 25% of your take home pay on your mortgage payment, but many Americans exceed this limit. This may be because most people take into consideration other home related expenses when reporting what they pay for their house each month. For instance, taxes and insurance costs are frequently factored into total house cost, as is the costs of repairs and everyday maintenance. When all of this is added together, it is not surprising to learn that close to half of your take home pay can go towards your home. With the number so high, you might be wondering if you can change your payment by filing bankruptcy. It depends, and what you are allowed to do with your mortgage could depend on what type of bankruptcy case you file.

There are two types of bankruptcy cases filed by consumers; Chapter 13 and Chapter 7. Here is what you can expect with regard to your mortgage in each type of case:

• In a Chapter 7 your mortgage lender will want you to either reaffirm the debt, or surrender the home. A reaffirmation is like a new contract, which will obligate you for the debt even after the bankruptcy case is over. Most reaffirmation agreements are a recitation of the same terms of your original loan, but in some circumstances you can negotiate some differences. With your mortgage, one difference you should be interested in making is the interest rate. If your lender is agreeable, you might be able to reaffirm at a lower rate and thus lower your payments. There is no guarantee your mortgage holder will agree to this, but it is worth asking.
• In a Chapter 13 case you get to pay back your past due payments over the course of several months, rather than pay them all up front. While you are paying the arrearage, you will also be allowed to pay the regular payment. This might not sound like it helps, but keep in mind you have more money at your disposal because you are no longer paying unsecured debts in full.

The same is true in a Chapter 7, as far as your unsecured debts are concerned. If you are worried your lender won’t reduce your rate, and that your payment will stay the same and out of reach, you can rest easy knowing that even if that is true you will be in a better position to make the house payment because your unsecured debts are wiped out entirely in a Chapter 7. When you have more take home pay in your pocket, you are able to make your money last longer. This helps you to make your house payment more easily, and save your home for going back to the lender. While these solutions may not be a true mortgage modification in the traditional sense, they do give you the relief you need.

For more information about how to manage debt, contact us at We will help by coming up with solutions that work for you.

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