What is the difference between chapter 7 bankruptcy and loan modification? 6 Answers as of November 30, 2010

Our home is worth less than the first mortgage and we are worried the second mortgage is going to foreclose.

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Maclean Chung Law Firm
Maclean Chung Law Firm | David H. Chung
In your case, it may be best to file for chapter 13 if you have the required income. You can get rid of the second mortgage altogether.
Answer Applies to: California
Replied: 11/30/2010
Gus Johnson Attorney at Law
Gus Johnson Attorney at Law | Gus Johnson
Chapter 7 is a bankruptcy proceeding, a loan modification is something that occurs independently of bankruptcy.
Answer Applies to: South Dakota
Replied: 11/24/2010
Mankus & Marchan, LTD
Mankus & Marchan, LTD | Tony Mankus
If the home is worth less than the 1st mortgage, it's not likely that the 2nd mortgagee will foreclose. Since your home is worth far less than what you owe the banks, loan modification would not make much sense in your case. Chapter 7 bankruptcy might be a good option to get out of your obligations to both of the banks, although, obviously, you would have to give up your home after foreclosure.
Answer Applies to: Illinois
Replied: 11/24/2010
The Law Office of Mark J. Markus
The Law Office of Mark J. Markus | Mark Markus
Chapter 7 is a liquidation of non-exempt assets and has absolutely nothing to do with a loan modification. Any debts you owe on the mortgages will be discharged in a chapter 7 case, but it does nothing about the liens against the property. Perhaps you are thinking of a Chapter 13 case where you can remove the lien of any junior mortgages under the scenario you describe. The difference between that and a loan modification really depends on what your budget is and how much you'd be paying in a Chapter 13 vs. outside, and the only way to determine that is to have a comprehensive consultation with a bankruptcy attorney in your area.
Answer Applies to: California
Replied: 11/23/2010
Royzman Law Firm
Royzman Law Firm | Natella Royzman
Chapter 7 bankruptcy and loan modification are very different remedies. In loan modification, you work directly with a particular lender to alter the terms of the loan. This can include a number of possibilities, such as reduction of the interest rate, reduction of late fees or other penalties, lengthening of the loan term, and/or reduction of the loan principal. Loan modification requires consent from the lender.

On the other hand, individuals who are eligible for Chapter 7 bankruptcy can eliminate all or a large portion of their debt without the consent of their creditors. There are some types of debt that cannot be eliminated through a bankruptcy, and Chapter 7 is not a good option for individuals who are behind on their mortgage but want to keep their home. Chapter 13 bankruptcy is another option to consider.

You should contact an attorney do discuss your particular situation and determine which course of action is best for you and your needs.
Answer Applies to: California
Replied: 11/23/2010
    Ursula G. Barrios Law
    Ursula G. Barrios Law | Guillermo Machado
    If your home is worth less than your first mortgage, we can help you strip the second mortgage in a Chapter 13. This will allow you to keep your home without the 2nd mortgage attached.Chapter 7 eliminates debt. Loan modification changes the terms of your loan. I would attempt a Chapter 13 to strip your second mortgage. Contact my office for a free consultation.
    Answer Applies to: California
    Replied: 11/23/2010
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