Loan Modifications in Bankruptcy: Can You Save Your Home?
- Sheereen E. Middleton, Esq.
- Jan 6
- 2 min read
Introduction
For many homeowners, the biggest concern in bankruptcy is: “Will I lose my home?” The good news is that bankruptcy doesn’t always mean foreclosure. In fact, bankruptcy can create opportunities to negotiate with your mortgage lender, including the possibility of a loan modification.
This post explains how loan modifications work during bankruptcy, when they’re allowed, and whether they might help you save your home.
What is a Loan Modification?
A loan modification is a change to the terms of your mortgage—such as reducing your interest rate, extending the repayment period, or adding missed payments to the end of the loan. Unlike refinancing, you don’t need a new loan—you’re changing the existing one.
How Bankruptcy Affects Loan Modifications
1) Chapter 7 Bankruptcy
A Chapter 7 case doesn’t directly provide a way to modify your loan.
However, while your bankruptcy is open, the automatic stay prevents foreclosure, giving you time to explore modification options with your lender.
Some lenders are more willing to negotiate once they know your other debts are discharged and your budget is clearer.
2)Chapter 13 Bankruptcy
Chapter 13 is more flexible. You can propose a repayment plan to catch up on arrears while continuing your regular mortgage payments.
Some bankruptcy courts also offer Mortgage Modification Mediation Programs (MMM) to help debtors and lenders reach an agreement.
A successful loan modification can lower your payments and help you complete your repayment plan.
Benefits of Loan Modification in Bankruptcy
Stop foreclosure while negotiating.
Lower monthly payments, making your mortgage more affordable.
Catch up on arrears without immediate lump-sum payments.
Preserve equity in your home.
Limitations and Challenges
Lenders are not required to grant a modification.
The process can take months and requires careful documentation.
If you miss post-modification payments, foreclosure may resume.
Not all bankruptcy courts have mediation programs.
Real-World Example
A Maryland couple filed Chapter 13 to stop foreclosure after falling $25,000 behind on their mortgage. While making plan payments, they applied for a loan modification through the court’s mediation program. The lender agreed to reduce their interest rate and extend the term, cutting their payment by $400 per month. This allowed them to complete their Chapter 13 successfully and keep their home.
Conclusion
Bankruptcy can do more than just erase unsecured debt—it can also create the time and structure you need to pursue a loan modification. If keeping your home is your top priority, Chapter 13 combined with a loan modification request may be the best path forward.
Next Step: Talk with Middleton Bankruptcy to see if a loan modification is possible in your case. Timing and strategy are critical—don’t wait until it’s too late.
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