Using Bankruptcy to Save a Home is a Challenge and Must be Done with Careful Planning.
It is also important to have the assistance of an experienced Chapter 13 attorney. WARNING: The default rate for individuals filing their own chapter 13 is more than 98%.
Bully tactics used to scare or coerce buyers.
We have finally seen the total evolution of the mortgage crisis. From 2008 through 2011, lenders were rejecting most or all loan modifications. Clients had to file Chapter 13 bankruptcy to try and save their home and repay delinquent mortgage payments. The majority could not afford the bankruptcy and regular mortgage payment, so many not only lost their home, but also stained their credit with a bankruptcy notation.
Now, mortgage lenders appear to be easing loan modification requirements. While I do not have any specific numbers, I can just see the difference on a client-to-client basis. I am not filing as many Chapter 13 bankruptcies as three or four years ago, and the ones we are filing seem to end early because the lender approves a loan modification.
Beware of clauses in the modification that say you will pay a lump sum on a specific date.
Think about the information you are giving this stranger: all your financial information, your children’s names, bank accounts and your social security number. You do this without the slightest guarantee that the information will be kept safe.
If there is an opportunity to modify the first mortgage – check into it. Make sure the lender knows you are in bankruptcy. Determine the exact terms (interest, balloon payments, etc). Since you will not be inside the Chapter 13 bankruptcy for the rest of your life, this modification will help your monthly cash flow once you complete your case. That will make your life much easier after bankruptcy.
If the modification appears to be in your best interest then you will need to obtain a court order approving the modification agreement. You may also need to modify your Chapter 13 plan payment. Most loan modifications lower your monthly payment, which will leave additional money in your budget. You will not be able to benefit from that extra money while the Chapter 13 case is still active. The trustee assigned to your Chapter 13 case will want you to use that additional money to pay more to the other creditors, including the second mortgage being eliminated. This is an important step not to ignore as your first mortgage payment may come down significantly after the loan modification.
If you have a second mortgage – A chapter 13 reorganization allows the borrower to strip off their second mortgage so long as the house is worth less than the debt of the first loan. To completely eliminate that second mortgage the Chapter 13 plan must be completed and the debts discharged. A modification of a mortgage is completely different from a lien strip.
We have several videos on our web site. Below are a few that might be of interest:
- “The Chapter 13 Bankruptcy Process”
- “Lender’s Foreclosure Rights in Arizona”
- “Should I keep my home or let it go into foreclosure?”
- “Meet Ms. Drain and Suggestions on How to Hire an Attorney”
Talk to your bankruptcy attorney about the chapter 13 process. They will be able to explain how the process works and the pitfalls that you much watch for. If your attorney does not seem to “get it or care” then hire a more experienced attorney.

Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*
In Case You Missed It
Published On: February 23, 2022
WHAT HAPPENS AT THE END OF A COVID-19 FORECLOSURE FORBEARANCE? Can servicers demand a large balance? Generally, the servicers should not be demanding full payment following a COVID forbearance. There [...]
Published On: July 29, 2021
CFPB Releases Online Tool Helps Renters and Landlords Access Federal Assistance New resource helps renters and landlords find state and local programs distributing federal rental assistance funds WASHINGTON, D.C. — July 28, 2021: The [...]
Published On: July 16, 2021
Arizona Residential Eviction Actions Procedures – effective July 15, 2021 IT IS ORDERED that the following procedures are applicable to eviction actions governed by Arizona Revised Statutes, Title 33, filed [...]
Published On: May 16, 2021
Forbearance of Home Mortgages During COVID-19 Know your options before making a decision not to pay your mortgage 11/18/21 UPDATE – see summary of foreclosure alternatives This chart provides a summary of relief [...]