Most borrowers are often able to manage their loan repayments initially, but as time progresses, many find it challenging to keep up with the financial burden. Nonetheless, there are remedies that can make loan payments more manageable for a struggling borrower, which can help prevent default and foreclosure. A common option is loan modification.
A loan modification is a change to the terms of an existing loan to provide some relief to the borrower. The change may be in the form of reduced interest rate, an extension of the loan terms or a conversion of a variable interest rate to a fixed one.
Here are ways a loan modification can help a borrower prior, during or after bankruptcy:
Avoiding bankruptcy
For some borrowers, modifying a loan can provide enough financial relief to avoid having to file for bankruptcy. With applied reductions or extensions on monthly payments, borrowers might be able to manage their debt more effectively and maintain their financial obligations.
During bankruptcy
Borrowers who are already in bankruptcy, particularly Chapter 13 bankruptcy, may seek a loan modification as part of their debt reorganization plan. Chapter 13 allows debtors to keep their property and pay debts over time, and a loan modification can help make their repayment plan feasible.
Post-bankruptcy
Even after completing a bankruptcy process and discharging other debts, a borrower can modify a mortgage loan or other types of secured loans to help them manage their remaining obligations and avoid future financial distress.
Loan modifications can be a useful tool for managing debt. However, it is crucial to have the right resources and guidance for this option to be effective. Between preparing your statement and negotiating with your lender, working with a lawyer who is knowledgeable of the process can benefit you highly when it comes to pursuing a successful loan modification.