When someone has trouble balancing their budget, renegotiating some of their financial obligations might help. For example, when your car loan or mortgage puts too much pressure on your monthly income, you may feel like changing the terms of the loan would be the best solution.
Lower payment amounts, a longer repayment period or even a lower interest rate could all make your debt more manageable. Many people will try to negotiate a loan modification when they start to fall behind on their mortgage or car payments only to find that their lender isn’t cooperative or that the process will take so long that they will be at risk of foreclosure or the repossession of their vehicle.
Fortunately, you don’t have to choose between loan modification and bankruptcy. You can potentially do both.
A Chapter 13 filing sets you up for a straightforward modification
During a Chapter 13 bankruptcy, negotiating a repayment plan with all of the creditors possibly affected by your filing is an important step. You also have the opportunity to renegotiate secured debts like your mortgage or vehicle financing.
Even lenders who were previously unwilling to work with you may cooperate during bankruptcy proceedings. It’s also possible for those who modified their loan previously to do so again to greater personal benefit during their bankruptcy.
You will typically need to reaffirm a loan in order to retain the collateral property during bankruptcy, but that doesn’t mean you have to keep the same terms that have pushed you into financial hardship. Exploring loan modification as a part of the bankruptcy process can give you more control over your finances going forward.