It’s possible in many cases to save your home despite periods of financial difficulty.

The steps that can be taken are:

Home Loan Modification. It might be possible to reduce the payments by extending the term of the loan, adjusting the interest payments, and in some cases reduce the principal balance on the mortgage, or some combination of these three. There is a threshold of qualification for modification.  The bank needs proof of ability to pay, with the principal and interest no greater than thirty percent of income after the refinancing. Loan modification requires full documentation and takes place at a closing, similar to a purchase or sale.

Chapter 13 bankruptcy. There are thresholds for qualification. The court requires a means test, establishing that you’ll have the ability to pay on a payment plan, making partial restitution to your creditors (often at a fraction of the balance due) with the debts discharged completely at the end of the payment plan. Your home can be protected. Second and third mortgages can become severed from the home and added to the pool of consumer debt covered by the payment plan.

Chapter 7 Bankruptcy If you have limited equity in the home and enough income to pay the mortgage, it might be possible to keep your home under Chapter 7 bankruptcy.

• If you have a very high amount of consumer debt, like credit cards debts or payday loans, it can be nearly impossible to qualify for a loan modification or a chapter 13 bankruptcy. However, a chapter 7 bankruptcy can eliminate these consumer debts and as a result allow you to qualify for a loan modification or chapter 13 bankruptcy. This little trick of using a chapter 7 to qualify for a chapter 13 is referred to as a “chapter 20 bankruptcy.”
• To learn more about how chapter 7 bankruptcy could be a good strategy for you, read our post: When Is A Chapter 7 Bankruptcy Useful? (P.S. It even goes over what to do if you can’t save your home, or don’t want to)