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When you’re behind on your mortgage, it can feel like the walls are closing in—calls from the lender, past-due notices, maybe even a foreclosure threat. At that point, most people are scrambling for answers, and two big ones usually come up: Loan modification or bankruptcy.
So, which one helps you keep your home?
Let’s break it down, no legal jargon, no fluff.
What Is Loan Modification?
A loan modification is when your mortgage lender agrees to change the terms of your loan to make it more affordable. This might include:
- Lowering your interest rate
- Extending the term (more years = lower monthly payment)
- Adding missed payments to the end of the loan
- Sometimes even reducing the principal (though that’s rare)
The goal: to help you catch up and stay in your home without going to court.
Pros:
- Stay off your credit report as a bankruptcy would
- You’re still working with your lender
- Can be a long-term solution if approved
Cons:
- Not guaranteed, lenders can say no
- Often slow and paperwork-heavy
- Foreclosure can continue during the review process in some cases
What About Bankruptcy?
Bankruptcy can step in when loan modification fails—or when you simply can’t wait anymore.
If you’re facing foreclosure, Chapter 13 bankruptcy can stop the process immediately with something called an automatic stay. This gives you time to:
- Catch up on missed payments over 3–5 years
- Stay in your home while making regular mortgage payments
- Potentially eliminate other debts (like credit cards or medical bills) to free up money
Chapter 7, on the other hand, might help if you’re walking away from a home, you can’t afford and need a clean slate.
Pros:
- Immediate protection from foreclosure
- Forces lenders to pause
- May reduce or eliminate other debts at the same time
Cons:
- Shows up on your credit
- A legal process that takes time and paperwork
- You still need enough income to make ongoing mortgage payments under a plan
Which One Saves Your Home?
It depends on your situation:
|
Situation |
Best Option |
|---|---|
| You’re only 1–2 months behind and can afford a modified payment | Try loan modification |
| You’re facing foreclosure and need immediate help | Chapter 13 bankruptcy |
| You’ve already tried modifying and were denied | Chapter 13 bankruptcy |
| You have lots of other debt, not just the mortgage | Bankruptcy may help clean the slate |
Don’t Wait for the Sheriff’s Notice
The sooner you act, the more options you’ll have. Whether it’s working out a loan modification or filing a bankruptcy to hit pause, you don’t have to figure it out alone.
At Sigal Law Firm, we’ve helped hundreds of Michigan homeowners find the right solution to keep their homes and get back on stable ground.
Let’s talk. We’ll walk you through both options and help you make the smart call.
