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When homeowners are facing a mortgage payment that they are unable to pay, they often wonder whether they should file for bankruptcy or try to get a mortgage modification from their lender.

A mortgage modification is an agreement to reduce the monthly mortgage payment, often by extending the life of the loan. This situation is ideal when there has been a change in the homeowner’s income or circumstances that makes it harder for them to come up with the mortgage payment.

The problem with mortgage modifications is that they can take a very long time. There is often too much back and forth between the homeowner and the banks and as a result the new loan can take a year to go through underwriting. When a homeowner is facing foreclosure, they do not have time for a lengthy process.

Bankruptcy is an immediate answer to foreclosure. A Chapter 13 Bankruptcy will automatically impose what is called an “Automatic Stay” which will stop a foreclosure in its tracks. A bankruptcy filing comes up with a repayment plan for the outstanding balance, or the arrearage of mortgage and therefore satisfies both the homeowner and the banks. The immediacy that is lacking in the modification process is taken care of in a bankruptcy.

Although a bankruptcy filing is a great immediate option, if the homeowner legitimately cannot afford their current mortgage payment, they may still need a modification. The good news is, you do not have to choose between a modification and a bankruptcy. I often suggest that homeowner’s do both. Filing a bankruptcy will stop the foreclosure and buy some time toward the modification process.