Denial of Loan Modification May Still Provide Debtor Some Relief

Loan modifications are very popular right now but not because of a high success rate. Applying for a loan modification can be a long process. Homeowners submit loan applications and supporting documents and wait months only to be told that the mortgage company needs additional documents. In the end many loan modifications are denied and the homeowner ends up losing their home.

But even when loan modifications are not successful the homeowner may still obtain some relief from the process. First, while applying for a loan modification the homeowner may not be required to make mortgage payments. The debtor may not have to make payments for two or three months, which will allow the debtor an opportunity to save money in case the loan modification is denied. In addition, mortgage companies will usually stop foreclosure proceedings while the loan modification is being considered. This allows the debtor a chance to look for other financing in case the loan modification is denied and lets them stay in their home a little longer.

If the loan modification is denied the debtor may still file Chapter 13 bankruptcy and cure the mortgage arrears through a reorganization plan. In some instances curing mortgage arrears in a Chapter 13 case is a better solution than a loan modification. Loan modifications cure the mortgage arrears by putting them into a new mortgage which means that the debtor will pay interest on the arrears. In Chapter 13 bankruptcy cases the debtor cures mortgage arrears by paying them in a Chapter 13 plan and the arrears are usually paid with no interest on the claim.