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Will a loan modification cause a problem with a Chapter 13 plan?

One reason many people file Chapter 13 bankruptcies is to save their homes. A Chapter 13 bankruptcy plan can take between three and five years, which means you are making payments to the bankruptcy trustee during that time. Your mortgage payment might be included in that plan, or it might not, depending on the specific needs of your case.

At the same time you are dealing with debt obligations via a Chapter 13 plan, you might also qualify for a mortgage modification. A mortgage modification is an agreement between you and your lender to modify the terms of your loan to make it more possible for you to make your payment each month given possible changes in your income or financial status. Modifications might include a change in your interest or a reduction in monthly payments.

If you're involved in a Chapter 13 bankruptcy, you might wonder if a modification to your mortgage will endanger your bankruptcy. In most cases, the answer is no, though it is always important to consult with your bankruptcy lawyer before making these types of decisions during a Chapter 13 proceeding.

You might be required to get the court's permission for a modification, and if the modification reduces the amount of your mortgage payment each month, you probably won't benefit immediate personally. During the life of your Chapter 13, that extra money is probably going to be required to pay toward your creditors. You will, however, benefit from the lower monthly payment once you are out of the Chapter 13, since you'll probably still be making mortgage payments.

Source: Bankrate.com, "Take loan mod while in Chapter 13 bankruptcy?," Justin Harelik, accessed July 29, 2016

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Joshua Z. Goldblum, Attorney at Law
826 Bustleton Pike Suite 101B
Feasterville, PA 19053

Phone: 215-322-2745
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