Loan Modification Verses Bankruptcy in Georgia

There are many reasons that the monthly mortgage payment on your home may be out of reach. You may have been offered a sub-prime, adjustable-rate mortgage that was affordable when you bought your home, but since then the interest rate has reset higher and higher, causing your monthly payment to skyrocket. Or, you may have bought a home shortly before the housing market collapsed and now find yourself paying month after month on a mortgage balance that far exceeds what their home is worth. (A.k.a being underwater) Finally, if the loss of your job or a serious illness or injury has caused your debt load to spiral out of control, chances are you are having trouble making your home mortgage payments as well.

If your home is heading for foreclosure, Chapter 7 or Chapter 13 bankruptcy almost always allows you to delay or prevent the process. Another option some people consider is a loan modification. However, a loan modification is by no means guaranteed, however, and there are several factors to consider before deciding to attempt a workout with the bank.

Pros and Cons of Loan Modifications

A loan modification may seem like an attractive option for both the borrower and the lender. In most cases, the bank would rather keep you paying something every month than have to foreclose on your property and maintain and sell it after you vacate. The federal government also has several programs that offer incentives to encourage lenders to agree to a modification. The terms of a loan modification are somewhat flexible too; a workout can lower your principal balance, lower your monthly interest rate, or re-amortize your loan to bring your monthly payments down.

However, obtaining a loan modification is a difficult process that requires a lot of work on the part of the borrower. In addition, there are several downsides, including:

  • The lender controls the process and dictates the terms. They also typically control how long the process takes. For many people struggling with debt, 4-5 months is a long time to wait.
  • The lender may agree to a temporary plan, but then later deny the modification after you have paid thousands of dollars to get a loan mod for you.
  • Banks are reluctant to negotiate workouts with consumers who have a high debt-to-income ratio.
  • Even a successful loan medication on your mortgage has no affect on your other debts. Credit card companies and other creditors may still harass you about your delinquent accounts.
  • Many lending departments won’t even discuss a modification until you are already late or in default, and foreclosure proceedings have begun. In this case, your credit is already damaged by the lender, making it less desirable to want to work with that lender.

In contrast, bankruptcy solves many of the problems presented by a loan modification. A bankruptcy is controlled by the court, and banks and other creditors are required to accept any bankruptcy plan approved by the court, even if they don’t like it. Both Chapter 7 and Chapter 13 create an automatic stay, which puts an immediate stop to foreclosure proceedings. In addition, Chapter 13 allows the homeowner to catch up past payments on a feasible schedule and end the foreclosure altogether. This is done through the bankruptcy court and does not require the homeowner to try to negotiate with an unwilling lender. Also, if the home is subject to a second or third mortgage, but the value of the home is less than what is owed on the first mortgage, it may be possible to strip away these junior lienslink to Lien Stripping, leaving only the primary mortgage.

Georgia Bankruptcy Attorneys Can Help Save Your Home

If your loan has reset and it has become difficult to meet your monthly mortgage payments, or if you have missed payments and fear the bank is preparing to foreclose, contact Berry & Associates in Atlanta about how we can help you keep your home. We have 11 offices in Georgia here you can schedule a free consultation at (800) 414-3328 with an experienced and proven bankruptcy attorney. We represent clients across the northern part of Georgia, including residents of Roswell, Marietta, Canton, Rome and Gainesville.