In my office I increasingly see clients come in for consultations after having completed a mortgage modification. I wish that I saw it much more frequently. With its singular ability to entirely remove a second mortgage, bankruptcy is an excellent follow-up to mortgage modification. Here are 7 reasons why everyone who completes a mortgage modification should consider also filing for Chapter 13 Bankruptcy.
1. Chapter 13 Bankruptcy can end your liability on your second mortgage--forever! That's right, in many cases bankruptcy has the power to end all liability that you have to a second mortgage holder. That includes liability for a home equity line of credit (HELOC), a home-improvement loan, or just about any other type of loan secured by your home. You will not only be able to stop paying the second mortgage during the bankruptcy, you'll be able to sell the home free and clear after the bankruptcy is complete. Read here to learn about qualifying for a mortgage strip.
2. Mortgage modification and bankruptcy have many of the same requirements. By the end of mortgage modification, most home-owners are familiar with what banks look for in a borrower: steady income, available monthly income, hardship, and the organization to work within a complicated system. These same requirements qualify a home-owner to file for Chapter 13 bankruptcy. The Chapter 13 payment plan requires the home-owner to prove to the court that he can make regular monthly payments, that he has little but available monthly income, and that he is able to assemble the requisite papers.
3. Mortgage modification and bankruptcy lessen the downsides of each. One of the biggest downsides in an effective mortgage modification plan is the necessity of falling behind in monthly house payments. Late payments can be reported on the home-owner's credit report for up to 7 years. The chapter 13 bankruptcy also stays on the home-owner's credit report for no longer than 7 years. The home-owner can count on returning to perfect credit not much later than he could do so with the mortgage modification alone--but with bankruptcy he may be able to do so free from credit card debt and a second mortgage.
4. Bankruptcy does not allow the bank to change or revoke your mortgage modification. Many home-owners are under the false impression that they are in some sort of grace period after their mortgage modification has been approved. This is not the case. Banks have no more right to change or cancel the terms of your mortgage modification than the home-owner does. In fact, many banks are pleased when their home loan borrowers file for Chapter 13 bankruptcy because they know that bankruptcy frees the home-owner from other obligations that compete with his mortgage payments.
5. Bankruptcy lowers your house payments. After filing a Chapter 13 bankruptcy in which the home-owner qualifies for a mortgage strip, he will not have to pay his second mortgage. The effect of the mortgage strip is to treat the second mortgage as an unsecured debt, and in most cases it will only be paid pennies on the dollar.
6. Bankruptcy ends your liability for almost all debts beside your first mortgage. Bankruptcy cleans up many of the problems created when the home-owner was struggling to keep up with his mortgage payments before the modification. Growing credit cards, late property taxes, and all sorts of other debts that grew as the borrower tried to hold onto the home are taken care of in bankruptcy, typically for much less than is owed.
7. The bankruptcy initial consultation is free. Often the Mortgage Modification success is low on cash, frequently having made up a deficiency and paid the professionals who aided with the modification. At Lincoln Law the initial consultation is completely free and most professional fees will be paid only after the case has been approved by the court. The upfront costs in filing Chapter 13 bankruptcy are less than mortgage modification fees or closing costs on a home refinance.
If you have recently achieved a mortgage modification, speak with a bankruptcy professional immediately to discover whether you qualify for a mortgage strip, cancellation of your unsecured debt, or even discharge of income or property taxes.