If you are struggling with unpaid debt and own a home, you have likely considered both mortgage modification and bankruptcy. In fact, individuals can file a bankruptcy case and apply for mortgage modification.
These are the factors your home loan provider will review when deciding whether to modify your mortgage.
Late payments
In general, you must already have past-due mortgage payments to apply for a loan modification. If you are delinquent on your mortgage or in danger of falling behind, call your mortgage company and ask about options to make your loan more affordable.
Change in life circumstances
You may need to show that issues beyond your control caused your inability to pay your mortgage. This could include:
Federal mortgage relief options
Some mortgage companies may offer a modification plan under the CARES Act. This law, passed in March 2020, includes the following provisions:
You can request this program directly from your mortgage company. The service may not charge additional fees, interest or penalties during this period. However, you will have to make up the skipped payments at a later date. This could be in graduated payments over time or as a balloon payment at the end of your mortgage. Make sure to read the loan agreement carefully for this type of modification.
Federally backed mortgage companies must offer these options. Other home loan providers can opt to offer modification but are under no requirement to do so.
When you receive a modification, the lender has discretion about how to adjust your loan to make it more affordable. This could include a lower monthly payment, a lower interest rate, a longer repayment term or a combination of those measures.
Chances are you are not familiar with the bankruptcy process and all you want is for the whole event to go smoothly.
Here are five mistakes you can easily avoid to make that happen:
Remember that the law requires you to list all your creditors when filing for bankruptcy protection. Your trustee may not discharge a debt you fail to initially report.
If you owe money to a family member, do not make the repayment prior to filing bankruptcy. The trustee who administers your case may interpret this as a “preferential payment” and disallow it. Your family member will likely have to send your repayment to the trustee.
Do not fail to list a second bank account. Do not try hiding a sum of cash by transferring it to the bank account of a relative or friend. If you attempt to hide assets prior to a bankruptcy filing, you could face fines plus time behind bars.
Do not fall into the trap of believing it is OK to go on a spending spree with your credit card before you file for bankruptcy. Your trustee will likely not discharge big-ticket items that show up just before the filing.
Finally, procrastinating is not a good idea. Every day you wait to file Chapter 7 or 13 only increases the amount of debt you are carrying. Delinquent bills may go to collection agencies and from there to your bank account in the form of wage garnishments. Your creditors will also hound you on the phone. Take the initiative. Learn more about the benefits of filing for bankruptcy and be proactive. The sooner you file, the sooner you can enjoy a brighter financial future.
Bankruptcy is a court decree that declares organizations or individuals unable to pay their bills or debts, thus legally eliminating their obligation to settle outstanding liabilities. The court arrives at the decision after the judge and court trustee carefully examine and weigh the individual’s or business’s assets and liabilities. However, the court may not grant every request for bankruptcy; there are strict qualifications that one must meet when filing for bankruptcy.
Declaring bankruptcy is often a good way of starting on a clean slate after running into some serious commercial or personal financial problems. But what does it really mean? What happens when the court grants your request for bankruptcy?
Automatic stay
Automatic stay is a preliminary court decree that protects you from creditors and debt collectors once you file for bankruptcy. This decree remains until the bankruptcy proceedings finalize, after which the court may or may not declare you bankrupt. As long as the automatic stay holds, creditors and collectors should not call, threaten or send notices regarding your debts.
Discharge
Once it declares you bankrupt, the court prevents creditors from collecting or claiming debts you previously incurred. The ruling clears unsecured liabilities such as credit card debts and other personal loans, but with a few exceptions. Personal discharge does not extend to some tax liabilities, child support, student loans, alimony and real estate loans. The court considers such debts too important to wipe clean, but in some cases, the court may provide opportunities for formulating feasible payment plans.
Clearing secured debt
Although you can wipe out secured debts through declaring bankruptcy, the court may require you to give up any assets securing such debts. For instance, if you secured a bank loan with your car, you may have to part with the vehicle as part or full settlement for the loan. In some cases, the court may order the liquidation of valuable assets that are not part of the collateral to clear secured debts.
Declaring bankruptcy is an effective way to get out of a personal financial crisis, particularly involving debts. However, you need to understand what you’re getting into when considering this move; there are many benefits and negative implications that may arise depending on the approach and timing.
Many people consider bankruptcy protection as the last resort. It remains on your credit report for up to 10 years, depending on which chapter you file. It can be a difficult yet wise decision if you are struggling to make ends meet.
Here are a few signs that may suggest filing bankruptcy is a good solution.
Decrease in monthly income
A permanent change in monthly income may be tough to adjust to. It could be the result of job loss, reduced hours, a job change or retirement. If you are unable to adapt to a permanent reduction in monthly income, bankruptcy may help. It could relieve reoccurring financial struggles, such as mounting credit card debt.
Increase in monthly debt
The stigma of bankruptcy often keeps consumers in a whirlpool of mounting debt. Many opt for overuse of credit cards to pay for necessities, such as groceries and utility bills. This can escalate into out-of-control debt. During challenging financial times, you may have to pay credit card payments late or skip them altogether. This gives the credit card companies the ability to raise your interest rate.
Bankruptcy may offer financial relief when struggling with medical expenses or student loan debt. Bankruptcy forgives most medical debts. Although it is rare for someone to have student loan debt discharged, filing bankruptcy may temporarily suspend payments. Additionally, you may be on a better track to make your student loan payments after bankruptcy has eliminated other debts.
Change in living arrangements
Changes in your living arrangements often affect monthly expenses. Death, divorce or a grown child moving back home are typical scenarios. If you own your home and have monthly mortgage payments, it is important to stay current. Falling behind by a few months will affect your ability to maintain regular payments and can lead to foreclosure.
Banks and mortgage companies must abide by the decision of the bankruptcy court. Do not hesitate to file bankruptcy to protect your most important asset – your home.
Deciding to file bankruptcy is a big decision. It is one you cannot make lightly without considering all the consequences and how filing for bankruptcy in Mississippi will affect you in the years to come. While filing may help you to take care of the problems you currently have with your credit, you may wonder what it will do to your credit afterward.
The effect that a bankruptcy may have on your credit can actually be positive. To begin with, you will have the debts removed from your credit report, including any collections. This clean wipe can help quite a bit. However, you should note, you will have the bankruptcy show up on your credit report, which is still a negative. If you file Chapter 7, it stays on your credit report for 10 years. If you file Chapter 13, it stays on for seven years.
The impact
The impact of a bankruptcy on your credit depends on which one you file. With a Chapter 7, you may see a rebound in your score almost right away because you have so much removed from your report that is negative. With a Chapter 13, since you repay some or all of your debts, it takes a little more time for it to have a positive impact on your credit.
Future filings
Furthermore, once you file bankruptcy, you cannot file it again for eight years, which tells creditors that they do not have to worry about that. This makes you less of a risk because they know for sure that you will not be able to get rid of a debt with them through bankruptcy. Essentially, it means they will get any money you owe them.
Filing bankruptcy is something you should do only with serious consideration, but it can be a good way to get your credit back on the right track.
