The bankruptcy process in Iowa includes a number of regulations and requirements around what can and cannot be done with assets and debts. For instance, once you have filed for bankruptcy, whether it is Chapter 7 or Chapter 13 bankruptcy there are strict procedures, and oftentimes restrictions, on the transfer of any property or payment of debts.
Many of the decisions regarding your financial situation become the interest and direction of the bankruptcy court. There is a lot of concern that proposed financial actions are restricted or prohibited, and in many instances individuals are right to proceed cautiously until their debts are discharged.
Consideration of a Loan Modification
Nearly all homebuyers in Council Bluffs, IA will take out a mortgage to purchase their house. Throughout this process a representative from the lending institution or your own lawyer will explain the term of the mortgage, the amount of interest, and the principal sum. It is a great idea to have a lawyer look over all lending documents, including guarantees before closing on a home.
Despite the diligence of this process, it is sometimes necessary to refinance your mortgage or do a loan modification. Refinancing and loan modification are not the same thing for residents of Council Bluffs. Refinancing results in a new loan, with an entirely new set of documents to sign. This is essentially a renegotiation of all terms and conditions between lender and borrower.
A loan modification is a change to the terms of an existing loan. Loan modification is typically considered where the borrower needs a short amount of time to recover or stabilize financially, but is expected to return to normal interest and principal payments eventually.
Outside of the bankruptcy process, borrowers will contact an attorney or the lender directly to begin this process. However, many borrowers wonder whether under Chapter 7 or Chapter 13 bankruptcy in Iowa if these financial restructurings are allowed.
Loan Modification Under Chapter 7 and Chapter 13
A loan modification may be started prior to Chapter 7 bankruptcy. This is quite often the case, as borrowers try to get back on their feet. It is best to complete the loan modification before filing for bankruptcy in Iowa. Once a Chapter 7 bankruptcy is filed, an automatic stay is put in place. This will prevent the lender from further negotiating the terms of the loan, until the automatic stay is lifted or authorization to proceed is provided. Due to this interruption, some lenders may require that the process be restarted.
After Chapter 7 bankruptcy is filed it is possible to initiate a loan modification. Most, if not all, lenders in Council Bluffs will require authorization to contact the borrower and proceed with the modification before doing so. As well, a lending institution in Iowa will likely require a court order authorizing the loan modification before it is finalized.
Quite often, the process is different under Chapter 13 bankruptcy in Iowa. Borrowers are legally allowed to engage in a loan modification while in bankruptcy proceedings. However, under Chapter 13 bankruptcy a payment plan is developed for the repayment of most or all of your debts. This court approved payment plan provides assurance to a mortgage company that you are going to pay some or all of the outstanding principal and interest on your home.
This can mean that while a loan modification is allowed, the lender has more room for discretion to engage in the process, and during economic downturns will regularly reject the application for a loan modification. However, if a lender is willing to proceed, then it is typically in the best interest of the borrower to proceed with a loan modification during Chapter 13 bankruptcy, as it will free up more cash at the time and after the bankruptcy proceedings.
Speak with a Qualified Bankruptcy Lawyer
Legal advice throughout the bankruptcy process can help you protect certain assets and provide clarity over a confusing situation. If you are considering or have filed for bankruptcy in Iowa, and you need legal advice regarding a loan modification, or other aspect of the bankruptcy process, call Charles L. Smith, and Nicole Hughes at the office of Telpner Peterson Law Firm, LLP. Our qualified bankruptcy lawyers in Council Bluffs, Iowa can be reached by phone at 712-309-3738.