How Loan Modifications Can Provide an Alternative to Bankruptcy

 Posted on August 03, 2021 in Bankruptcy

There are many reasons why homeowners may struggle to make ongoing mortgage payments while also covering other necessary expenses. This has been a major concern during the COVID-19 pandemic, which has led many people to lose their jobs or suffer other financial setbacks. While bankruptcy may be an option for some who are unable to repay their debts, homeowners should also be aware of the various alternatives to bankruptcy that may be available. These include requesting loan modifications that will allow them to maintain ownership of their homes while ensuring that they will be able to make affordable payments.

Types of Loan Modifications That May Be Available

Debtors who have experienced financial hardship, such as the loss of a job or health issues that have led to increased medical expenses, may be able to qualify for a loan modification. The eligibility for a modification and the types of modifications that may be available will vary depending on the lender. Typically, a debtor can apply for a loan modification if they have missed one or more payments. Potential loan modifications may include:

• Forbearance - A homeowner may request a “pause” on their payments during a period of financial hardship. If forbearance is granted, these payments will need to be made up, either by adding them to the end of the loan or by temporarily increasing the number of monthly payments after the forbearance period ends.

• Interest rate adjustments - A lender may agree to lower the interest rate on a loan, which can reduce the amount of a debtor’s monthly payments. Converting a loan from an adjustable-rate mortgage to a fixed-rate mortgage may also help ensure that payments will continue to be affordable.

• Term extension - The total amount of time required to pay the principal owed on a loan may be increased. This will reduce the amount of the monthly payments.

• Adding arrears to the principal - If a debtor has missed one or more payments, they may struggle to make up what is owed, along with any fees or penalties that may apply. These amounts may be added to the principal, allowing the debtor to pay them off over the length of the loan.

• Principal reduction - In some cases, a lender may forgive some of what is owed. By reducing the total balance, this will allow the debtor to make affordable payments throughout the remainder of the loan.

Contact Our Schertz, TX Loan Modification Attorney

If you are struggling to make mortgage payments or repay other debts, the Law Offices of Chance M. McGhee can help you understand your options. We will work with you to negotiate loan modifications with your lender. If necessary, we can also help you file for bankruptcy and receive debt relief. Contact our San Antonio bankruptcy lawyer today by calling 210-342-3400 to set up a complimentary consultation and learn how we can help.

Sources:

https://www.thebalance.com/mortgage-loan-modification-and-bankruptcy-4067663

https://www.forbes.com/advisor/mortgages/mortgage-modification/

https://www.nerdwallet.com/article/mortgages/all-you-need-to-know-about-mortgage-loan-modifications