Many consumers today are facing foreclosure due to failed attempts at getting their home loan modified. Even if your lender offers you a trial mod that doesn’t necessarily mean you’re home free. Many times our clients come to us with a trustee sale date hanging over their head only after they were approved for a trial loan modification, then declined.
Using Chapter 13
Filing for bankruptcy chapter 13 might be the answer if you still want to keep your home, and you might be able to eliminate most of your unsecured debt at the same time. Finding a bankruptcy lawyer that understands the bankruptcy laws and state exemptions is important if you want the maximum benefit of a chapter 13 bankruptcy.
Reduce Principle
If you have an upside down 2nd lien (negative equity) it can be eliminated in a chapter 13 just like credit card or medical debt in a chapter 7 bankruptcy. Filing a chapter 13 bankruptcy with a motion to avoid the lien will strip the lien once the plan is completed and could deliver the loan mod you’re looking for. Yes, a true principal reduction. I’m a California bankruptcy attorney and I have seen plenty of cases where chapter 13 filers have eliminated over $100,000 of negative equity from 2nd and 3rd mortgages. When the market rebounds, so will their equity! If you are current on your 1st mortgage, delinquent on your 2nd and struggling with other debt most lenders in a 1st lien position won’t modify your loan.
Chapter 7
If you qualify for a chapter 7 you can eliminate your personal liability on the 2nd but the lien will remain on title. In Riverside, California probably 75% of the homes still upside down and most consumers who purchased homes between 2004 and 2007 over paid as much as 40%. Some of the properties we see are still upside down as much as 50%.
If you have been declined for a loan modification you should consult a bankruptcy lawyer that handles chapter 7 and chapter 13, or can at least refer you to an attorney that handles chapter 13 bankruptcy. If you were fortunate enough to get a loan mod and have a 2nd mortgage that’s upside down then filing chapter 13 with a “motion to avoid the lien” could save you a fortune.
Understand Your Options
A bankruptcy attorney will review your income and debts and when filing chapter 13 bankruptcy and tell you what type of plan you’ll be on. Even if someone has not considered bankruptcy they should at least understand the benefits of bankruptcy when a loan modification has been declined, or for that matter approved. Let’s be honest, Government loan modification programs are failing miserably and the lenders are not motivated to help people even if they make all their trial mod payments on time.
As bankruptcy attorneys we see the end result of overwhelmed and understaffed loss mitigation (loan modification) departments every day. With California unemployment rates over 12% and property values depressed throughout California, most homeowners can’t refinance and take advantage of today’s low interest rates, let alone get a loan modification from their lender. Bankruptcy has helped thousands of homeowners avoid foreclosure after failed loan modifications. If you want more information about bankruptcy or foreclosure defense call the bankruptcy attorneys at the Law Offices of Zhou & Chini for a free consultation.
