As Chapter 7 bankruptcy lawyers, one common question that we get when clients come to our bankruptcy law firm is whether or not they can lower their mortgage payment by filing for bankruptcy. We understand a major concerns with people facing financial difficulties is the ability to make their mortgage payment. We know that people need to stay in the house they purchased. Unfortunately, you cannot lower a mortgage payment with a Chapter 7. However, there are other, non-bankruptcy-related options that you can use to reduce your mortgage payment. Some of these option exist concurrently with filing Chapter 7 Bankruptcy.
In order to properly evaluate your situation, we recommend speaking with a bankruptcy attorney. Bankruptcy attorneys can give you legal advice and walk you through your options. Every situation is different. Therefore, attorneys prefer to make evaluations and recommendations with the facts at hand.
Can I lose my home after filing Chapter 7?
As a Chapter 7 Bankruptcy lawyers, we warn clients that bankruptcy does not get rid of mortgages. A successful Chapter 7 discharge only wipes out personal liability on the mortgage note. The lien remains on the home. In other words, the lender cannot come after you personally if you do not make the payments. However, if you don’t pay the mortgage, the lender can still foreclose on the home. Due to these legal intricacies, it is especially important to have an attorney review your situation.
A home mortgage is secured by the property itself. Therefore, the lender retains the right to foreclose. This is also true after a Chapter 7 Bankruptcy discharge. Therefore, it is important to stay current on the home and in some cases reaffirm the secured mortgage loan. This depends on the jurisdiction you live in.
Other options to reduce the mortgage payment
As a bankruptcy law firm, we advise our clients that they sign a contract with the lender that agrees to repayment terms when they take out a mortgage. Filing with the help of a Chapter 7 Bankruptcy lawyer does not alter the terms of that contract unless it is renegotiated. There are ways that to work with the lender, and other organizations, in order to lower the mortgage payment to allow the client to continue living in the home.
Renegotiate the loan
Remember, a mortgage holder wants to make the most amount of money possible through the interest collected on mortgage payments. Very often, when a client is going through a bankruptcy, the mortgage holder will be willing to renegotiate the loan so that they do not have to foreclose and lose money on the interest payments.
Loan Modification Options
If certain criteria are met, a client may be able to apply for a loan modification that permanently changes the terms of the original loan. In most cases, a loan modification will work to lower the monthly mortgage payment by reducing the interest rate or by extending the original length of the loan.
For alternatives, a better understanding, and comprehensive advice we recommend that you call our bankruptcy law firm and schedule a consultation as part of your planning when considering bankruptcy.
NOTE: This is for informational purposes only and does not constitute legal advice.