Bankruptcy And Loan Modification
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Do You Qualify For Loan Modification?
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The United States economy has tanked to record levels, leaving millions of families is dire straits. What once was thought to be a safe and secure life has now turned into uncertainty and doubt. Doubt about the next pay check. Doubt about finding another job. Doubt about being able to afford health care. Doubt about being able to stay in the home which represented the American dream. Families have to make decisions that may help to maintain their lifestyle, if only for a few more months. This is when many consider a bankruptcy loan modification.
In recent months, the House has passed a measure that will make mortgage loan modification easier for struggling home owners. This measure allows the bankruptcy courts to modify mortgage loans on primary residences. This measure had been lingering in Congress for more than a year prior to passage. Now, when a homeowner has to file bankruptcy, principle reductions commonly know as cram downs, would be included.
The benefit of a bankruptcy loan modification to a person who is worried about keeping their home and making affordable payments is tremendous. This relief leaves one less item on the financial to-do list as we wait for the economy to improve. Through a Chapter 11 bankruptcy filing, new terms for the note or deed are proposed by the homeowner. These terms may include lowering the interest rate, extending the term of the loan, or deleting late charge payments.
While there are no limits to what the homeowner can propose to the bankruptcy court, he or she must be able to convince the court that any change is fair and reasonable. For a homeowner to prove that their conditions are reasonable and fair first requires that they have a steady income that is high enough to meet the proposed obligations. The goal is not to live in your dream home on easy street, but rather to be able to afford to repay the mortgage agreement. The court will determine the fair and reasonable changes. There are other requirements which must be met under Chapter 11. Once all these things are met, the court will approve the plan and force the bankruptcy loan modification to be in effect.
The results are a new loan with new terms. Additionally, and more importantly to the homeowner, any prior foreclosure action is stopped. While this seems quite beneficial to homeowners and the real estate market by keeping people in their homes, only a small percentage of Chapter 11 plans are approved by the courts.
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