A FEW years ago, when the foreclosure crisis first erupted, there was some talk about new legislation in Congress that would allow bankruptcy judges the power to modify mortgages. Unfortunately, this never happened. In the meantime, thousands and thousands of foreclosures continue while bankruptcy attorneys are doing what they can to help their clients using whatever means are available under current federal bankruptcy laws.
One of the options available that seems to be working (at least in a lot of cases that we handle) is the combination of doing a loan modification under HAMP (Home Affordable Modification Program) with a Chapter 13 bankruptcy that greatly eliminates most debts including a second or third mortgage on the property in foreclosure. Think about it. Most struggling homeowners would be in a much better position financially to afford a modified mortgage if they were also to get rid of other debts such as credit cards, personal loans, etc. since one of the factors that the lenders consider in reviewing a loan modification application is the debtor’s debt to income ratio. At the same time, if the property is completely “under water” with a second or third mortgage not secured with any equity, getting rid of the junior mortgages would make the home more affordable to homeowners who already have enough problems paying the first mortgage alone.
Last year, the Obama Administration introduced some important changes in the loan modification program directives that prohibit lenders from discriminating against debtors in bankruptcy. One of these changes include the lender’s discretion to waive the “trial period” for Chapter 13 debtors if certain conditions are met: (1) Debtor must be current on post-petition mortgage payments (2) The Court approves the HAMP modification (3) Lender/Investor guidelines allow the waiver. A few days ago, one of our clients in Chapter 13 was happy to report to us that since he was in a Chapter 13 and was found to have met all the requirements for a waiver, his loan modification was quickly approved less than 3 months after applying. In theory, the HAMP trial period is supposed to last only about 3 months although in reality, this can last for many months, sometimes a year or more- with no final decision from the lender. You have to understand that if the lender takes several months or over a year to approve your application, a lot of things can happen during that time that could eventually lead to a denial. (Example: Let’s say your income goes down and the lender later asks for updated proof of income. Failure to show that the income has not changed from the time you first applied can be grounds for denial). So it is to your advantage to shorten the waiting period as much as possible- such as completely bypassing the “trial period” in the scenario I described above if at all possible.
Filing a Chapter 13 while doing a HAMP loan modification can also ensure that you will never lose your home even though your loan modification is eventually denied as long as you remain in Chapter 13. Should you file Chapter 13 before or after you have applied for a HAMP loan modification? What happens if you file Chapter 13 and eventually get approved for a HAMP loan modification? Can you get out of the Chapter 13 at that point? The answers to these questions depend on your individual situation, your objective and where you are in the foreclosure timeline. In finding the answers, don’t just go to ANY attorney because not all attorneys are the same. Seek the advice of a competent bankruptcy attorney who will take the time to carefully evaluate your case and advise you regarding all available options.
For a free consultation, call Toll-Free 1-866-477-7772. We have offices in Glendale, Cerritos, West Covina and Valencia.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 4,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1-866-477-7772.
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