Sacramento Bankruptcy Attorney Blog

Loan modification in bankruptcy is usually a more predictable process than trying to modify a mortgage directly with the lender or even using a loan broker. Many Sacramento home owners are unsuccessful in reducing the principle debt on their home loans or lowering the interest rates. Some of my bankruptcy clients have tried to call their lender themselves but the lender offers unrealistic options, presents lengthy time lines to complete the process, or doesn't respond at all. Others have tried to hire a loan expert to negotiate on their behalf and have had mixed results.

Ultimately the mortgage company is normally not compelled to act favorably toward home owners in these types of situations. Having not paid their mortgage in quite some time, borrows usually don't have much leverage in the process. To make matters worse, they are often racing against the clock, trying to lower the mortgage payments and get caught up on late payments before the home is auctioned off at a foreclosure sale.

As a bankruptcy lawyer, I have modified mortgages for my clients in Federal Court. The bankruptcy process provides debtors with rights that they otherwise would not have outside of bankruptcy. In certain situations the mortgage terms can be changed without the creditor's consent. However, with respect to certain types of loans, a debtor's ability to improve their mortgage terms is quite limited, even in bankruptcy. It's important to know whether the mortgage is a first mortgage or a secondary one, and whether the debt was incurred for a primary residence or a secondary residence or business property.

Depending on the type of loan, a bankruptcy chapter 13 or chapter 11 debtor might have the right modify a mortgage secured by their real property. In some cases they can reduce the principle amount of the debt so that it corresponds with the current value of the property or possibly lower the interest rate so that it is closer in line with current market rates. In addition, a debtor usually has the option to repay months of missed payments slowly over time instead of having to repay the amounts in one lump sum payment. That option can be helpful in preventing the foreclosure sale of the home. Most families do not have twenty or thirty thousand dollars to catchup on their missed payments, but if their conditions have recently improved they might be able to pay an extra three hundred or four hundred dollars per month and the loan is still affordable and within their budget.

What if your car payment is too high for your budget?

High car payments are one of the biggest reasons that people file bankruptcy in Sacramento. Under chapter 13 of the bankruptcy code, a debtor, with respect to certain qualifying car loans, usually has the ability to reduce the principle debt on a secured car loan and reduce the interest rate on that same car loan.

If a debtor wants to keep property that is the security for a debt, in a chapter 7, the debtor must normally agree to continue to pay that debt under the preexisting terms of the loan. However, chapter 13 offers a lien stripping option that can be exercised in an individual's bankruptcy case. In addition to locking in a lower interest rate, in some cases a qualifying debtor may also repay missed or late payments slowly over the life of the debtor's plan. This option helps to keep car payments low. In addition, the term of the car loan can be increased in some cases. This also has the effect of lowering the car payments and making them more affordable.

In Sacramento, the value of most automobiles has been sharply reduced in the last few years. The economic impact on car values has caused many owners to have negative equity. They end up owing much more than the car is worth. When a bankruptcy court determines the principle amount of debt to remain on a car, the court usually looks to the value of the car. Kelly Blue Book is a good starting point to determine car values.

Interest rates that are much higher than the market rate can also be modified in some cases. The prime rate is usually a good indicator of the market rate. Of course, there must also be a consideration of the risk that the debtor presents, and therefore a risk margin is often added to the market rate.

What are some of the important factors in the lien stripping determination that a bankruptcy lawyer will make? Here are a few: 1) when was the debt incurred? 2) was it ever refinanced? 3) is the car for personal use? 4) are there any upgrades or options that were added to the car? 5) can the debtor afford to make the payments on the car if the payments are lowered? These are just some of the basic considerations; but there are others in more complex debt reductions plans.

An automobile is an essential item of personal property for most people. We use them to get to work, pick up our children from school, and to take short vacations. Most of us like nice cars but sometimes we buy them only to later realize that we cannot afford to pay the payments on them. When you can non longer pay your car payments you risk losing your car or having it repossessed. Many who are faced with high car payments could afford to keep their car if the car is modified in some way. That's why lien stripping remains a valuable option in a chapter 13 case.