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.
