Can I Modify My Home Loan Under Chapter 13 Bankruptcy?

Over 733,000 people filed for Chapter 13 bankruptcy in 2019. Filing for bankruptcy can be confusing, and understanding your options after filing can be even more complicated. If your situation changes, can you modify your home loan? How does it affect your bankruptcy?

Chapter 13 Overview

There are several types of bankruptcy, and they aren’t one-size-fits-all. Chapter 13 is a great option for debtors who are not a business and have a steady income. Essentially, Chapter 13allows you to reorganize your debts, which means that you can create a payment plan to help you pay what you owe.

The main selling point of Chapter 13 is that instead of liquidating assets to pay off debt, the debtor can pay their debt over time through a repayment plan. Usually, after you file for bankruptcy, you will begin to make payments no more than a month after filing.

In order for your application to be approved, a bankruptcy court judge will evaluate your case and plan proposal.

The plan must meet the following qualifications:

  • It must be realistic
  • The debtor must propose the plan in good faith, meaning they cannot try to manipulate the bankruptcy system in their favor
  • The plan must be lawful

Once the plan gets approval, you have three to five years to make payments. Remember that while Chapter 13 allows you to pay off what you owe according to a repayment plan, your debts will not be wiped out entirely until the debt is paid.

The following are debts that you will pay under Chapter 13 bankruptcy:

  • Priority debt should always be paid in full. Examples of priority debts include child support, taxes, and alimony.
  • Secured debt is what you owe for established loans or mortgages.
  • Unsecured debt is the amount left over after paying your priority and secured debts. This can be living expenses, credit card balances, and medical bills. In some cases, you may not have to pay these in full, but you should show the bankruptcy court that you are making an effort to pay off these debts.
  • Nonexempt property value is what you pay for property that isn’t exempt from your court-approved repayment plan. This amount and what it includes varies from case to case.

Repayment is dependent on your earnings and ability to make the payments. Most Chapter 13 filers have a five-year plan, which is more realistic and is likely to be passed by a judge.

Loan Modification and Chapter 13

Chapter 13 bankruptcy is, in a way, a loan modification, but if you still need to make changes to a mortgage or loan, you can negotiate with your lender. In fact, many filers apply for loan modifications after filing for bankruptcy. What does it mean to modify a loan?

Basically, when you ask for a modification, you are requesting changes to the terms of your loan. Depending on the loan you have and the lender, you may change the monthly payment amount or extend the deadline for your missed payments.

If you want to apply for a loan modification with your lender, you will have to get approval from a bankruptcy judge. As mentioned earlier, the judge will evaluate your proposal to see if it is realistic based on your income. You will also have to draft a new Chapter 13 repayment plan that reflects your mortgage loan changes.

Do I Still Need Bankruptcy After I Modify a Loan?

The short answer is: it depends. An attorney can work with you to determine whether it is in your best interests to continue your Chapter 13 case. If your repayment plan includes debt other than your mortgage, you may need to stick with bankruptcy.

Ultimately, the best thing you can do is speak to an attorney. They can evaluate your case and help you understand your options. They are also knowledgeable about the bankruptcy court process, so they can guide you through any changes that need approval from a judge.

If you have filed Chapter 13 bankruptcy or want to know if you should apply for a loan modification, contact the legal representatives at Kovacs Law, P.C. today.