Common Myths Related to Bankruptcy, Modification, and Foreclosure

The processes surrounding bankruptcy, loan modification and foreclosure in Miami are often complicated, resulting in several misunderstandings about how these processes work and which one you should pursue if you are facing distressing financial situations.  These common myths make it difficult to make the right decision for your financial future, so dispelling them and learning the truth about which process would work in your favor if you are considering bankruptcy in Florida is an important step to getting back on track with your life and financial goals.

Myth #1 – Loan modification is encouraged by the federal government and therefore anyone can easily get it to reduce the principal amount that’s owed on their home.

Wrong.

Less than 30% of the homeowners who apply for loan modifications are granted them.  Additionally, it’s not an easy process and can take many months to complete and there is no guarantee that the lender will reduce the principal amount on the mortgage.  You may have gone through the whole process merely to have your loan extended to 40 years and the interest rate temporarily reduced, not getting you any closer to paying off your home.

Myth #2 – If I apply for a modification, my house won’t go into foreclosure and my missed payments will be waived.

Wrong.

If the foreclosure process has already been started on your home, or is close to being started, applying for a loan modification will not stop this process.  At best, it might slow it down or postpone the sale date slightly, but there’s no guarantee.  Also, a loan modification will not waive your missed payments.  Most lenders simply add these missed payments on to the end of your loan terms. 

Myth #3 – My credit takes a bigger hit if I file for bankruptcy than if I have to undergo a foreclosure. 

Wrong.

Many people find that their credit score actually improves after bankruptcy, especially if they’ve been missing payments for a while on multiple accounts.  If you have a foreclosure on your credit, it will take a serious hit—often one that is more serious than bankruptcy causes. A Miami bankruptcy attorney will be able to look at your specific circumstances and help you determine if a bankruptcy will help you achieve better credit in the short-term and long-term.