Blog

Feb
07
Bankruptcy Offers Options to Save Homes From Foreclosure

One of the biggest concerns that people have when they are in a financial crisis is saving their homes. People often want to refinance to try to lower their monthly payments to try to protect their homes from foreclosure, but find out that the banks are unwilling to offer refinancing – either due to the fact that the borrowers are behind in mortgage payments or the home mortgages are underwater.

Many believe they are out of options if banks refuse to refinance. People often do not realize that they can save their homes by either pursuing loan modifications or filing Chapter 13 bankruptcy.

Loan Modification

One way people in Chicago can keep their home is through a loan modification. A modification of a mortgage is different than refinancing a home mortgage. When a person refinances, he or she pays off the existing mortgage on his or her home and gets a completely new one, often with better terms such as a lower interest rate. Homeowners who refinance need good credit ratings in order for banks to be willing to offer them loans on favorable terms.

A loan modification changes the terms of an existing loan in order to help the mortgagee get current on payments. The lender may agree to reduce the interest rate, extend the terms of the loan and roll the missed payments back into the principle. The new terms may be temporary to allow the borrower time to reorganize his or her finances, or the lender may agree to make the new terms permanent.

The federal government began a program in 2009 called the Making Home Affordable Program (HAMP) to give banks financial incentive to modify loans rather than foreclose on homes. In order to qualify for a loan modification under this program a borrower needs to:

• Have originated the mortgage before January 1, 2009

• Be an owner-occupant of the home

• Have an unpaid mortgage balance of no more than $729,750

• Complete an affidavit of financial hardship explaining why he or she has trouble making the mortgage payments

• Have a monthly mortgage payment equal to at least 31 percent of his or her gross monthly income

Loan modifications may not be appropriate for everyone. The loan modification process can be drawn out. For people who do not qualify for HAMP or are simply offered terms that are unfavorable, they may want to explore another option.

Chapter 13 Bankruptcy

Homeowners who are concerned about falling too far behind on their payments while waiting for a loan modification to be completed or those who have been denied a modification may be better suited for a Chapter 13 bankruptcy.

Chapter 13 bankruptcy is sometimes called reorganization bankruptcy because debtors create a debt repayment plan that allows them to pay their debts over a period of three to five years. Certain debts, such as arrears on their mortgages and auto loans must be paid, but other debts, like credit card or medical debt are paid in part based on what the debtor can afford.

A Chapter 13 bankruptcy will not change the terms of the underlying mortgage, but it will help a homeowner save their home by stopping the foreclosure process and preventing the lender from adding additional fees to the mortgage. Debtors who are interested in loan modification on their home may still be able to complete one after they have filed for bankruptcy.

The possibility of losing a home to foreclosure can be overwhelming. Choosing between a loan modification and bankruptcy processes can be difficult. If you are looking for options to prevent foreclosure consult with a Chicago bankruptcy attorney who has experience with loan modifications. A lawyer who is familiar with both processes can discuss your situation with you and advise you of your options.


Convenient Locations

In order to provide convenience for clients throughout Chicago and Northern Illinois, we have offices in the following locations: 

Chicago • Schaumburg  • Oakbrook • St. Charles • Naperville • And More

Locations

We have office locations throughout the Chicago Area:

Chicago (Downtown)

Schaumburg

Oak Brook

Naperville


All calls are routed through our Downtown office for your convenience.

Phone: 312-967-3159

Locations

We have office locations throughout the Chicago Area:

Chicago (Downtown)

Schaumburg

Oak Brook

Naperville


All calls are routed through our Downtown office for your convenience.

Phone: 312-967-3159

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