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How may a bankruptcy help after defaulting on my home loan?

On Behalf of | Nov 16, 2021 | chapter 13 bankruptcy |

A lender sending you a notice for defaulting on a mortgage generally means that your account has not received a payment for 60 days. As noted by U.S. News and World Report, the next step your lender takes may include filing a lawsuit to begin foreclosure.

Creditors follow their own timeline to determine when borrowers have defaulted. Your loan’s terms most likely define how many months can pass without payment. Some mortgage companies allow two months. Credit card issuers, however, often go up to six months before considering an account in default.

The difference between default and delinquency

Data from the Mortgage Bankers Association showed that by the end of June 2020, more than 8% of U.S. homeowners had delinquent mortgages. Unlike defaulting on a loan, a delinquency notice means that your lender might work with you to catch up on past-due payments.

If you receive a delinquency notice, your lender may approve a home loan modification. You could have an option to request a change in your mortgage terms, according to the Consumer Finance Protection Bureau’s website. If approved, a modification could temporarily reduce your monthly payment amount until your circumstances improve.

Bankruptcy as an option to prevent foreclosure

Lenders do not usually offer home loan modifications to borrowers with accounts in default. If a temporary loss of income or an illness kept you from making payments, bankruptcy could provide a way to continue owning your home.

As reported by Credit Karma, individuals with steady income may qualify for a Chapter 13 bankruptcy, which provides a repayment plan. The court typically does not dissolve a mortgage; you may need to refinance it.

Homeowners with mortgages in default may still hang on to their properties. Chapter 13 bankruptcy restructures your monthly budget and could stop a lender from filing a lawsuit to take back your home.

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