Should I Refinace My Home to Avoid Chapter 13?
Decisions about how to best protect your house in a time of financial hardship can be tricky. A high-interest rate or bad loan terms can make it difficult to make your monthly payments. Your options to avoid foreclosure are varied, from loan modifications to refinancing to filing Chapter 13 bankruptcy. The choice you make should depend upon your individual circumstances.
Other People Are Reading
-
Refinancing
-
Refinancing a mortgage can be helpful if you have a high-interest rate or if you have a variable rate and want to try to get a fixed rate. If you have more than one mortgage, you might be able to refinance and roll two mortgages into one. The downside of refinancing is that it can be difficult to obtain if your home value has dropped significantly since you got your first mortgage, or if you have bad credit. You also are faced with going further into debt on property that has decreased in value, which may not be wise.
Loan Modifications
-
A loan modification is a method of changing the terms of your mortgage loan to better suit your abilities. Loan modifications can change your interest rate, change your loan term, reduce your monthly payment and even reduce your principal balance. However, you must be in default to begin the loan modification process, and if the loan modification falls through, the mortgage company can still foreclose on your house.
-
Chapter 13 Bankruptcy
-
Chapter 13 bankruptcy allows you to catch up on mortgage arrears over a period of three to five years while still making your regular mortgage payment. If you have a second and even a third mortgage, if your house is worth less than the balance on your first mortgage, you can use the Chapter 13 to get rid of the second and third mortgages altogether. On the negative side, bankruptcy stays on your credit report for 10 years, and your case will last three to five years. If you have a change in circumstances during the case and lose your ability to make your plan payments, you may end up losing your house regardless. Additionally, Chapter 13 bankruptcy is court-monitored and forces you to live within your means, following a tight budget and sticking with it for the entire duration of the case.
Which Method to Choose
-
Whether to try to refinance, try to get a loan modification or simply file a Chapter 13 case is a decision you must make based on your personal situation. Nothing will prohibit you from trying each one until you come to the one that works, however. If you can't get a refinance, you can try to get a loan modification, and if that doesn't work, you can file a Chapter 13 as long as you do so before a foreclosure sale occurs.
Legal Disclaimer
-
This article is for informational purposes only; none of the information provided herein should be construed as legal advice. Contact a real estate attorney or a bankruptcy attorney to get help with your particular scenario, as they usually provide free consultations.
-
