Since the mortgage meltdown of the last several years, many people have been facing foreclosure or default on their mortgage on their real estate. The issue of mortgage modification can arise directly with your mortgage company or can be requested as part of a foreclosure action. Modification of your mortgage is more likely to occur presently now more than ever before in the past. Although modification is voluntary on the part of the lender, it is possible to obtain a reduction in principal and interest rates and other modifications to the loan which make payments more affordable to the debtor.

In some cases, bankruptcy relief may not be necessary, and the debtor simply needs assistance in presenting the modification package and renegotiation of the mortgage upon terms more favorable. However, sometimes the strategy of modification is used in conjunction with a Chapter 13 proceeding and can also be accomplished as part of the Chapter 11 or 13 proceeding. Workouts are more common in the commercial context than in consumer cases, but the concept refers to an overall strategy of dealing with all creditors and attempts to compromise and lower repayment amounts.

This strategy can result however in an IRS Form 1099 forgiveness of debt and resulting tax liability should principal be forgiven by the creditor. The Bankruptcy Code protects debtors from this issue if forgiveness of debt occurs prior to or in the context of a bankruptcy proceeding of any type.