If you lose a job or your business goes down, you may find it challenging to meet some of your financial obligations. One of the most important commitments is the monthly repayment of your mortgage. If you default due to hardships, you risk foreclosure, and your family might lose the home. We at the San Diego Bankruptcy Attorney can help you file for bankruptcy and renegotiate how to meet your mortgage obligations without losing your home.
Options in Renegotiating your Home Mortgage
It is typical for one to panic and end up losing everything when faced with financial challenges. Fortunately, there are ways to save your valued assets as you file for bankruptcy and work towards recovering financially. When faced with potential bankruptcy, you can opt to modify or refinance your mortgage. These methods are a way of renegotiating your mortgage and saving your home from foreclosure.
Sometimes, depending on your situation, it may be advisable to combine refinancing and modifying your loan. The idea is to get manageable repayments, enabling you to keep your home. When your debt portfolio is suffocating you, finding a way to lower the repayments and avoid defaulting is always the best option.
Understanding Loan Modification
If your mortgage loan becomes challenging to repay, you may get it modified instead of defaulting. When you decide to file for bankruptcy, you can contact your lender to modify your terms. The favorable modification, in this case, will be to bring down the interest charged and prolong the repayment period. Your lender can also offer to change your loan type to enable you to pay it up quickly.
The primary goal of getting your loan modified is to make it affordable for you to repay, and at the same time to protect the creditor from losing money. Through modification, your lender can adjust your payment terms by:
Decreasing the interest, you pay
Changing your adjustable-rate loan to that of a fixed-rate one
Extending the time to repay like from thirty years to forty
Picking your arrears and adding them to the end of your loan
Deferring part of your principal and
Forgoing part of the principal amount.
When you get your home mortgage modified, the lender benefits from losing money through your defaulting and the cost of foreclosure. Equally, you also benefit from keeping your home and reducing your financial burden.
Understanding Refinancing your Mortgage
Another way to save your home when faced with bankruptcy is to refinance the loan. When you opt for refinancing, you are merely asking your lender to issue you with new credit in place of the old one. Typically, refinancing is aimed at reducing the interest for the previous loan or adjusting the terms that seemed unfavorable with more favorable ones. Refinancing can be achieved through your present lender or by establishing a new one.
However, not everyone qualifies for refinancing. One needs to be creditworthy, and your home’s value must still be able to cover the loan. This means you owe your lender less than the property’s worth. When compared to modification, one may prefer it than refinancing. The reason behind this is that modification does not consider your creditworthiness to the extent refinancing does. However, you must prove to your lender that you have sufficient income not to default on payments.
On the other hand, refinancing offers less interest rate than what one gets when they modify their loan. However, lenders are more flexible when changing your mortgage to make it more affordable than to refinance it.
Modification in Bankruptcy
As earlier stated, when one is faced with significant financial hardships than before, it may be challenging to meet their financial obligations. A home is one of the most valued assets a person may have. As a result, you want to protect this valuable asset and avoid yourself or your family from being homeless. When faced with these financial difficulties, seeking a way to save your home becomes critical.
Some people wait until they have no option but to face bankruptcy before they seek a loan modification. But, you do not need to wait until this time to modify your loan or get refinancing. If you have already filed for bankruptcy, you will get the automatic stay, and you can have this to your advantage. An automatic stay in bankruptcy gives you some space to breathe as you strategize how to eliminate your debt.
When you have filed for bankruptcy, the court takes control of all things that touch your finances. However, you are permitted to continue with your daily transactions that include utility bill payments or buying of groceries. Modification or refinancing your loan is, however, not considered a standard regular operation.
When you have filed for bankruptcy and require modification of your mortgage, the court’s approval depends on the case you submitted. For instance, when you file under Chapter 7, the process will take between four and six months. During this time, some lenders will ask you to get court approval to have your mortgage modified.
If your case was filed under Chapter 13, you must obtain the court’s approval to modify your loan irrespective of what the lender wants. To get the approval, your bankruptcy attorney must petition the court for it.
Considerations in Bankruptcy
When faced with bankruptcy, it does not mean you are stripped of everything and left with nothing. Because the federal government understands people face financial difficulties, they have provided for five different kinds of bankruptcy. However, most individuals file for Chapter 7 or 13 cases.
With Chapter 7, the process provides for forgiveness of the debt owed, known as a discharge of debt. This is achieved through the exchange of your nonexempt assets. According to federal law, nonexempt assets are considered not essential in your fresh start.
When you file your bankruptcy case under chapter 13, it focuses more on reorganizing your finances as opposed to eliminating your debt. Under this, you will be required to make payments to the trustee each month. The payments are structured such that they last between 36 and 60 months. After receiving the money, the trustee distributes it to your creditors if they filed claims with the court.
Whether you have filed for bankruptcy under Chapter 7 or 13, your debt will still get discharged at the end of it. This means you will find relief from the requirement to pay some debts like medical bills or credit cards. The difference between the two cases is, however, on how you get to discharge.
If your case is under Chapter 7, you must turn over all nonexempt assets, as earlier mentioned. According to the law, exempt property is deemed essential for a fresh start after your bankruptcy. The nonexempt assets are turned over to the appointed trustee, who sells them and pays your creditors.
When your bankruptcy is filed under Chapter 13, you will not be required to turn your property to the trustee for selling. Instead, you will be required to make monthly payments lasting between 36 and 60 months to the trustee. The trustee is then mandated by the court to distribute the money among the creditors that properly filed their claims in court.
When the court approves your bankruptcy petition under Chapter 7, you may be required to give your home up to be sold and repay the mortgage and any arrears. However, when you want to save your house, filing for bankruptcy under chapter 13 becomes a better option. During the automatic stay, your lawyer will help you negotiate a repayment plan for your mortgage according to the law.
It is essential to understand that the lender does not want to lose their money as well. As a result, you can seek to modify your mortgage to affordable monthly payments that will save you from being homeless.
In most cases, your arrears in the mortgage payment are included in the loan modification. If you want the arrears removed from the repayment plan under Chapter 13, your bankruptcy attorney must petition for it. Sometimes, you may feel that Chapter 13 bankruptcy is not helpful to relieve your financial burdens. When this is the case, through your bankruptcy lawyer, you may opt to convert your case to Chapter 7 Bankruptcy or get it dismissed.
How to Enter a Modification Agreement
When you are concerned about losing your home, you need to have a discussion with your lender and agree on better terms for you. There are a few steps that you must follow when renegotiating your home mortgage with your lender. These include:
Application – To begin with, you must make an application to your lender, indicating the need to modify your home mortgage repayments. Typically, a lender will need evidence that your income is sufficient to meet the modified payments for your mortgage. Lenders will also require you to present them with your credit report, but they do not require a maximum or minimum credit score. However, the lender will consider the debts you must pay each month from other creditors before approving.
Trial Payments – Once your application is approved, the trial phase begins. After going through the application and paperwork, the lender can decide on the repayment amount. You will then be given a chance to make several payments on a trial basis, in most cases, three payments.
Final decision – After the successful payment of the trial phase, the lender makes the final decision. In most cases, you will be allowed to modify your mortgage and, in turn, save your home.
Who Qualifies for Modification?
As stated earlier, if you are facing financial challenges that can result in your home’s foreclosure, you can renegotiate your terms with your lender. If you have already petitioned for bankruptcy under Chapter 13, you can also negotiate to modify your mortgage. However, not everyone qualifies for modification.
Qualifying when you apply for modification depends on your lender. Some people have mortgages issued by a mortgage company, a bank, or an entity like Freddie Mac or Fannie Ma. Each lender has their requirements for one to qualify for modification. However, the general specifications common to all include:
If out of your monthly income, you spend 31% to cover your housing costs. These costs include payment of your mortgage, property taxes, insurance, and any other dues to the home.
You will also qualify for modification if you do not qualify for refinancing.
Additionally, if your fortunes in your finances have changed such that you are likely to default, the lender will consider you for modification.
You will also qualify for a modification if the value of your home has declined, yet the amount you owe the lender is over it’s worth.
Arrears in Home Mortgage Modification
Your home is at the risk of foreclosure because you have fallen back on your payments and accrued arrears. During modification, your arrears can be added up to the loan, and a repayment arrived at. For instance, if you file for bankruptcy under Chapter 13, your payment to the trustee includes the arrears.
Sometimes, a debtor may be against more money in terms of arrears going to the lender. In this case, to remove the arrears, their attorney will be required to do two things. For starters, your attorney will petition for mortgage modification from the court. The court can decide to put the motion up for hearing before the court, especially to allow other interested parties to object. If the lender does not object to it and the repayment terms are favorable to you, the court will approve it.
When the lender opts to object to your application to remove the arrears, there will be a hearing to discuss the terms of modification. Both parties will present their case before the judge, who makes a ruling approving or disapproving the motion.
If the court approves the motion, you will enter a modification agreement with your lender. Your attorney will also request the court to adjust the terms that include the removal of the arrears.
Loan Modification Management Programs
From 2016, the bankruptcy court in California started offering Loan Modification Management Programs (LLM) for persons risking foreclosure of their homes. This program provides a forum where homeowners and their lenders arrive at a solution that is agreeable to both parties. The process is, however, under the supervision of the bankruptcy court in California.
Before starting this program, there was little help for homeowners faced with bankruptcy to modify their loans. Instead, all the arrears they owed were paid under Chapter 13 bankruptcy, where a repayment plan was arrived at. The new program, however, gives hope to individuals struggling to make mortgage payments, especially when their fortunes turn. This program offers the following:
Protection against foreclosure of your home when you have filed for bankruptcy,
A platform where both creditors and debtors can discuss in good faith ways to modify the home mortgage that are satisfactory to both parties,
It allows you to engage a bankruptcy lawyer that will help establish if the program is helpful for you.
Renegotiating your Home Mortgage Under LLM
Most people will testify that getting your mortgage loan modified is not easy. Despite the many promises by mortgage service providers, the process of modification can be frustrating to debtors. In most cases, you will have to make long calls to the service provider and still not get the help you need. When you are already overwhelmed by debt, you want a process that makes it easier to manage your mortgage loan but not to frustrate you further.
Through the LLM program, your bankruptcy attorney will petition the court to allow you to communicate directly with the lender. This communication is facilitated through a third party portal that tracks the correspondence and documents exchanged between the parties. The creditor must participate in good faith, and they cannot claim not to have received the documents. This program makes the process easier and faster, and as a result, you save your home from foreclosure.
Qualifying for LLM Program
Not every debtor qualifies for the program. The bankruptcy court has set out some guidelines that outline eligibility for the program. Some of these include:
You must have a pending case with the bankruptcy court in California to qualify. The instructions, however, do not discriminate against any bankruptcy case or code used.
Your home mortgage loan that you seek modification should have been due for foreclosure before you filed for bankruptcy. Additionally, the security for the loan must be in real assets that you have an interest in. This means you cannot seek modification for a mortgage whose security is your sister’s home.
The fees for bankruptcy filing must be fully paid before requesting to participate in the program.
You must have at least $230 set aside to pay for different fees concerning the program.
When you have filed for bankruptcy in California, your bankruptcy attorney will present you with various options to help you save your home. Your lawyer will also help with the negotiations with your lender and ensure your interests are well represented.
Find a Bankruptcy Attorney Near Me
Financial challenges happen despite well-thought plans. The debt obligations can be overwhelming, risking the loss of your home. Fortunately, through the help of the San Diego Bankruptcy Attorney, you can renegotiate your home mortgage and prevent your home foreclosure. Call us at 619-488-6168 and allow us to discuss the various options available to you.