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Irvine Bankruptcy Lawyer / Loan Modification

Home mortgage loans are, not surprisingly, the largest category of consumer debt in the United States. Likely, your home loan is your single largest monthly bill, and it is your most important. If you have lost your job or suffered an extended illness, if your monthly spending is higher than your income, or if you got locked into buying more home than you can afford, then keeping up with your mortgage might become out of reach. If this happens, it is an urgent situation that must be addressed quickly. It will not take very long before the bank finds you in default and starts the process to foreclose on your home.

Before that happens, get help from a qualified attorney who will take the time to understand your circumstances and recommend the best option to help you deal with the issue you are facing. Below we discuss the pros and cons of loan modifications and how bankruptcy might be a better choice. For a detailed discussion regarding your unique situation in Orange County, Los Angeles or Southern California, call The Law Office of Charles A. May for a free consultation with a skilled and knowledgeable  lawyer.

What Is a Loan Modification?

A loan modification is a change made to the terms of an existing loan by your lender. The modifications can include lowering the interest rate, extending the length of the loan, or even converting a variable interest rate to a fixed one. It is typically a strategy employed to make your loan more affordable, especially if you are facing financial hardship.

How Does Loan Modification Work?

Once you have recognized that your current loan terms are becoming unmanageable, the first step is to contact your lender. The lender will usually require you to submit financial documents such as income statements, a hardship letter, and other relevant information. After reviewing your application, the lender may agree to adjust one or more terms of your loan to make it easier for you to meet your payment obligations.

Key Changes a Loan Modification Can Bring include:

  1. Reduced Interest Rate: The interest rate can be lowered to decrease your monthly payments.
  2. Extension of Loan Term: The lifespan of the loan can be increased to reduce the monthly payment.
  3. Principal Forbearance: A portion of the principal balance might be set aside, lowering your monthly payment for a set period.

Pros and Cons of Loan Modification

If accomplished correctly, a loan modification can offer many benefits. A loan modification can help you avoid foreclosure and retain ownership of your home. Reduced monthly payments make managing your finances easier. Also, unlike bankruptcy or foreclosure, loan modification has a less severe impact on your credit score.

That said, loan modification has its downsides that should be considered as well. For one, a loan modification may only provide temporary relief; often the modified terms are only a short-term solution. And while an extended payment period might reduce your monthly payment, it could wind up with you paying more to the mortgage company in the long run than you previously owed.

In addition, the application process itself can be complicated and stressful, and there is no guarantee that you will be successful in the end. Lenders are not required to agree to a loan modification and might prefer to simply foreclose if you cannot keep up with the payments. Some homeowners believed they were negotiating a loan modification with one department of the bank while another department was proceeding with foreclosure. Other times, people were certain they had a loan modification in place only to discover that the lender was not sticking to its terms.

How Bankruptcy Can Solve Loan Modification Issues

While a loan modification sometimes offers a viable solution, it is not always the best route for everyone. That is where the consumer bankruptcy expertise of The Law Office of Charles A. May comes into play. Unlike loan modification, which generally offers short-term relief, filing for bankruptcy can alternative solutions, such as debt discharge or reorganization. Another problem with loan modification is that it only addresses your mortgage. While that is important, if you have other large sources of debt, the loan modification keeps you in your home but does not help you globally. Bankruptcy, on the other hand, can discharge or consolidate multiple debts, making it easier to regain financial stability.

Bankruptcy also comes with legal protections that loan modifications do not offer. For instance, an automatic stay is enacted when you file for bankruptcy, preventing creditors from taking any action against you during the process. The loan modification process might not necessarily stop a bank foreclosure from proceeding, while the automatic stay in bankruptcy prevents any foreclosure from proceeding against you, even if one is already underway when you file.

Chapter 13 bankruptcy, in particular, cures your mortgage default by rolling your missed payments into your Chapter 13 repayment plan, which you can pay back comfortably over a three or five-year period. If mortgage foreclosure is the biggest issue you are facing, Chapter 13 might be a solution.

Finally, it Is also important to realize that undergoing bankruptcy does not necessarily rule you out for future loan modifications. It can, in fact, make the terms of one even more favorable for you.

Contact The Law Office of Charles A. May for Help With Loan Modifications and Bankruptcy

Loan modifications and bankruptcy can both be viable options for dealing with financial hardship, but one option might be better than the other given your unique circumstances. Understanding the pros and cons of each can help you make an informed decision. If you are dealing with financial struggles, The Law Office of Charles A. May is here to help you navigate the complexities of both loan modification and bankruptcy. Call now for a free consultation and take your first step toward financial peace of mind.

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