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IN THIS ISSUE:
5 Questions to Ask About Loan Modification
Distressed homeowners often find loan modification frustrating and confusing. If you are considering a loan modification, getting as much information as possible before you contact your lender can help you prepare your case and get you the results you need.
Unlike chapter 7 bankruptcy, when someone files for bankruptcy under chapter 13, they are looking to repay some or all the debts in their name with lower or no interest at all. This involves liquidating their assets and restructuring debts so that they can apply future income towards paying off creditors.
By law, a debtor is given 5 years to pay back a creditor and the process is supervised by the courts. Debtors are allowed to keep their property, but the court creates and approves a new interest-free plan for the debtor. The plan outlines the details of the transactions and how long it will take. It is up to the debtor to start repayment within 30-45 days after the courts have approved the plan.
There are situations in which properties are in foreclosure with negative equity, where the seller owes more than the property is worth. Under these circumstances, lenders may be willing to accept less than the full amount due. This known as a “short sale.”
For homeowners, this means that if there’s no way to make mortgage payments on time and if the home is worth less than what is owed, a foreclosure doesn’t have to be the only way out. Short sale means selling a house for less than what is owed on the mortgage, given that the lender agrees to it. The rest of the debt is usually forgiven since it outweighs the negative and time consuming effects of foreclosure proceedings.