Modifying Your Mortgage During a Chapter 13 Bankruptcy in St. Paul, Minnesota

A Chapter 13 bankruptcy allows a debtor to cure mortgage arrears in a three-five year repayment plan. It is a structured and organized plan in which the debtor typically makes monthly payments to the bankruptcy trustee to pay back a portion of their unsecured debt, and the amount that is not paid off at the end of the plan is simply wiped out, tax free. If a debtor pays mortgage arrears in their Chapter 13 repayment plan, the debtor may also benefit from working with their mortgage company to modify their mortgage.

Modifying mortgages in a Chapter 13 bankruptcy may be beneficial because the terms of the loan can be altered to allow for lower monthly mortgage payments. Additionally, past due mortgage payments may be added to the principal of the loan, and missed payments or a portion of the principal may be forgiven. A loan modification may also extend a debtor’s repayment period and lower the interest rate. Moreover, a Chapter 13 bankruptcy will prevent further mortgage debt from accumulating. A debtor must complete a loan modification application before their mortgage company can determine whether it will be willing to accept a monthly payment from the debtor that is affordable to the debtor. It may take up to several weeks or even months for a mortgage company to approve or deny a loan modification application. After a loan modification is completed by a debtor, the loan modification must be approved by the bankruptcy court and in effect, a debtor’s Chapter 13 plan payment may need to be modified as the loan modification may lower the debtor’s monthly Chapter 13 payments.

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To learn more about whether a loan modification is the best course of action to take while in a Chapter 13 bankruptcy, come visit us at our new office location in the Cathedral Hill neighborhood of St. Paul, Minnesota, or come visit us at LifeBackLaw.com!