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Obtaining a Loan Modification After Filing Chapter 13 Bankruptcy

If you are in the midst of financial crisis and your main goal is to stay in your home, the first step is often to file for a loan modification. If you have approached your lender regarding a modification for your mortgage to no avail (possibly multiple times) it may be time to consider other options that will enable you to stay in your home even if you cannot afford the payment any longer.

Many in this situation will find that a Chapter 13 bankruptcy could benefit their situation. With the Chapter 13, filers could pay back the delinquent mortgage payments during their repayment plan period. The Chapter 13 bankruptcy is commonly referred to as a reorganization bankruptcy. It can be beneficial for a number of reasons. Most Chapter 13 reorganizations last between 3-5 years; during which time, the filer makes a designated monthly payment to the bankruptcy trustee. The bankruptcy trustee then distributes that money out to creditors on a pre-agreed plan.

In cases that include a past due mortgage, the trustee will administer payments to the mortgage lender for the past due amounts while the borrower pays the current mortgage payment. During the process of a Chapter 13 repayment plan, bankruptcy filers can submit an application for a loan modification on the mortgage. Experience with California bankruptcy indicates that while you may have been denied (even multiple times) a loan modification in the past, your post-bankruptcy loan modification application may very well be approved.

But the application for a loan modification after bankruptcy doesn’t guarantee success. Many have applied for a loan modification on their mortgage after filing for Chapter 13. Some have been approved and some have been denied. Sadly, there is no clear pattern to guarantee success in this endeavor, but the fact remains that in some instances, filers succeed in obtaining the desired loan modification. Some filers have even successfully obtained a loan modification while in an active Chapter 13 bankruptcy, for more than 12 months. What that means is that the filer/borrower filed for Chapter 13 bankruptcy protection and made the first 12 consecutive payments to the bankruptcy trustee and to the lender and then applied for another loan modification. It could be that this situation left the lender feeling that the Chapter 13 reorganization stabilized the financial situation of the borrower and they were now seen as a less risky loan modification applicant.

The difficulty in predicting loan modification application success is due to the fact that lenders seem to be constantly changing the parameters for approval. In numerous instances, clients interested in bankruptcy as an option for relief from their financial burden will suddenly find that their 3rd, 4th or 5th loan modification application is suddenly approved with no apparent change to their overall circumstances. This happens both with bankruptcy filing and without.

If you are interested in obtaining a loan modification after filing for Chapter 13, but aren’t sure how bankruptcy changes the situation, please get in touch with the southern California bankruptcy attorneys at Westgate Law.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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