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Obtaining loan modifications during Chapter 13

A loan modification may enable a South Carolina homeowner to avoid foreclosure. When a loan is modified, the terms of the loan are changed to help a borrower stay current with payments. A loan modification may take place even if a borrower is in the midst of a Chapter 13 bankruptcy. Filing for bankruptcy may give a homeowner leverage because an automatic stay goes into effect as soon as the case is filed.

This stay makes it impossible for creditors to take any further action against a borrower. Therefore, a foreclosure may not proceed until the bankruptcy case is resolved, and the lender cannot refuse to accept payments made during bankruptcy. However, a homeowner is still obligated to make payments each month while the case is pending. While a bankruptcy may provide a borrower with extra time to make payments, the homeowner may be asked to reaffirm the debt.

Reaffirming the debt means that the homeowner agrees to pay any missed payments or penalty fees that may have accrued in the past. Doing so is important because debts are otherwise discharged after three or five years depending on the terms of the Chapter 13 repayment plan. As these debts may not be discharged, it may be possible for a lender to resume foreclosure proceedings after other debts have been discharged.

Homeowners who are going through foreclosure may wish to talk to a bankruptcy attorney who may be able to help determine whether Chapter 13 bankruptcy is a viable tool to help a client keep his or her home. Homeowners who make their payments on time may be able to obtain a loan modification from their lender. This may enable that person to roll missed payments into a new loan or have penalty fees reduced or eliminated.

Source: SF Gate, "Can You Get a Mortgage Modification While in Chapter 13 Bankruptcy?", Ciele Edwards, October 07, 2014

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