O'Brien Law Firm, LLC - Bankruptcy

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Mortgage modification offers after Chapter 13

Many people consider bankruptcy because of bills and financial responsibilities that exceed their savings and income. According to the National Association of Realtors, the average monthly amount for mortgages is $1,061, and this can become burdensome. If you have filed for Chapter 13 bankruptcy, though, you may receive an offer from your lender for a modification. These agreements have pros and cons, and there are a few things you should know.

Take advantage of a low interest rate

Because your lender does not want your loan to go into foreclosure, they will likely offer a modification with a low interest rate. After around five years, it may go back up, but it will not exceed the rate specified in your contract or the interest rate qualified buyers are eligible for. Having your interest rate reduced like this, though, can alleviate the burden of a hefty monthly mortgage payment to make.

Revisit filing for Chapter 13 bankruptcy

In such cases, the relief from a modification may make Chapter 13 unnecessary. For many people, though, bankruptcy is not due to any single financial issue — it is the solution to a series of debts and financial burdens. Still, it is worth considering how a modification might or might not impact your decision to file for Chapter 13.

Consider the effect of amortization

Another important factor to take into consideration is the responsibility to taking on the extended amortization that is often included in the modification agreement. This typically entails an additional 40-year agreement, and this may last the remainder of your life. Though a modification may temporarily relieve financial stress, it may also prolong it for years in the long run.

If you are considering Chapter 13 bankruptcy or a mortgage modification, you should be aware of all your options. Contact an attorney for more information and legal advice on handling excessive debts.