A Chapter 13 bankruptcy filing or wage earner’s plan offers numerous benefits when compared with a Chapter 7 filing. It protects your assets, comes off of your credit report earlier and may result in fewer ethical qualms because you make a concerted effort to repay your creditors prior to discharge.
It also puts you in a good position to renegotiate or modify your secured lines of credit, such as your mortgage. Changing the terms for your mortgage can have a big impact on your budget after bankruptcy. Asking for the right modifications during your negotiations with your lender could set you up for future financial success.
Lower your interest rate
Perhaps you have had a loan for years without refinancing, and the interest rate is lower now than it was when you first bought your home. Maybe because of increased property values, you will have a lower percentage of the property’s value financed, allowing you to qualify for better rates even with your current credit issues. Reducing your interest rate even a small amount can lead to thousands of dollars in savings over the course of your mortgage.
Adjust when you pay those missed months or recent fees
It is common for people to file for bankruptcy because they have fallen behind on mortgage payments and might soon face foreclosure. Your lender typically expects you to catch up on those missed payment amounts.
A modification may allow you to move those missed payments and any fees your lender has assessed to the end of your repayment period. While you may have to spend more years paying off your mortgage, you will be in a better position to keep your home in the long run.
Switch your mortgage over to a different form
If you have an adjustable-rate mortgage or a loan with a balloon payment that you will eventually need to make, those future obligations could put your homeownership at risk. Changing the structure of your mortgage now could help you protect the investment you have made thus far in the property.
Recognizing the kind of changes that would benefit you as you try to fix your financial circumstances can make modifying your mortgage easier and more beneficial. Planning ahead can help you maximize the benefits that you derive from a Chapter 13 bankruptcy, such as improved terms on your mortgage.