Modifications and Bankruptcy Issues

August 1, 2013


Bankruptcy provides a mechanism for families to address all of their debts at once, in an orderly fashion. in both chapter 7 and chapter 13 cases, homeowners discharge most of their unsecured debts (credit cards, medical bills).


They emerge from bankruptcy with an enhanced capacity to pay secured debts, such as mortgage loans. A mortgage loan modification is more likely to succeed—benefiting homeowners and lenders—if the homeowner’s overall debt burden is reduced.


Bankruptcy can be particularly important when the home is also subject to one or more junior liens because bankruptcy allows the junior liens to be reduced, leaving more money available for payments on the first lien, and reduces the junior lien contemporaneously with the modification of the first lien mortgage, instead of after the fact, as happens with modifications outside of bankruptcy. Moreover, bankruptcy ensures that the junior liens get reduced in order of their priority, reducing the potential for junior lien holders to profit at the expense of senior lien holders. When servicers fail to process loan modifications for homeowners in bankruptcy, they undermine both the bankruptcy process and the loan modification process.


WMFA is not a law firm and our employees are not acting as attorneys. The information contained in the article is general information and should not be construed as legal advice.

Please reload

Featured Posts

Ask Marie: That Could Trigger an IRS Audit?

June 25, 2016

Please reload

Please reload


Follow Me
  • Grey Facebook Icon
  • Grey Twitter Icon
  • Grey Instagram Icon
  • Grey Pinterest Icon

3701 Long Beach Blvd. Suite 100, Long Beach CA 90807

Tel: (877) 828-8877

  • Facebook - White Circle
  • Twitter - White Circle
  • White Yelp Icon
  • LinkedIn - White Circle
  • YouTube - White Circle

© 2020 Wealth Management Financial Advisors, Inc. All rights reserved.

This website is owned by a private company that offers business advice, information and other services related to the formation, financing, operation, and management of businesses. All users should perform their own due diligence and research. This website is not a lender and does not broker loans, make loans or make any credit decisions. We have no affiliation with any government agency. Nothing on this website is an offer or a solicitation for a loan. This website is not an agent, representative or broker of any lender and does not endorse or charge you for any service or product. None of the information on this site constitutes legal advice.

You also understand that we are not affiliated with the Small Business Administration (SBA). If you need to visit the SBA directly please click here: