Credit Counseling Website

As the mortgage meltdown continues with no end in site, more and more people who face foreclosure are also being forced into the option of bankruptcy too. It has become apparent that a lot of homeowners who couldn’t come up with their mortgage payments have been using their credit cards and other personal lines of credit to get the cash that they need. Once the lines of credit and credit cards are at there limit, inevitably, these people end up in an even larger financial mess. In one recent poll, credit card balances owed are at an all-time high and, if this inclination goes on, our firm predicts that bankruptcy filings will continue to rise as they have over the last three years since the new bankruptcy laws were passed.

Recently, we’ve been meeting with many of homeowners who are considering bankruptcy but are also in the process of trying to get a loan modification with their lender because they have a foreclosure in the process. In fact, we work with several attorneys who offer loan modifications. The loan modification lawyers tell me the lenders are escalating their foreclosure efforts and denying more loan modifications due to debt to income ratios. What this means is that if you owe a lot in other debts (such as credit cards, personal loans, etc.) besides your mortgage, the bank may look at that even although your mortgage payments are lower after is your loan is modified, it would still be difficult or impossible for you to keep your home because you have other debt obligations that must be paid (and a lot of people in foreclosure are also behind on all their other debts so these debts are showing up as collection accounts on their credit report). In other words, the bank may be telling you that given your current debt load, you alone cannot afford to keep your home, and they would rather cut their losses and foreclose on your home because they are left with no other option. Bear in mind that lenders do not like foreclosing on any home but will do so as a last resort.

Because of the monolithic number of foreclosures that the mortgage companies are currently dealing with, I find that a lot of lenders are slow these days in initiating the foreclosure process even when the borrower is already several months delinquent. even so, in California, once a Notice of Default is filed against the property, the 90-day statutory period begins to run and the meter starts ticking. Unless the foreclosure is stopped, by filing bankruptcy, or other sound means, the lender only needs to give 21 days’ notice (by sending the borrower another document called “Notice of Trustee Sale”) after the 90-day period in setting a sale date for the property being foreclosed on. Filing bankruptcy, Chapter 7 or Chapter 13, will immediately stop the sale from going forward, and the bank will need court permission to continue with the process if mortgage payments are not being made. An experienced and knowledgeable bankruptcy attorney can explicate to you how Chapter 7 or Chapter 13 may help you save your property or at least put off the foreclosure sale so that you can look at all other possible options. In Chapter 13, it is also possible to “strip down” or remove your 2^nd mortgage if the current market value is below the total of the 1st mortgage.

Eliminating (or at least consolidating) your debts may improve your debt-income ratio and this may be what your mortgage company wants to see when reviewing your application for a loan modification. Of course, this is just one of the factors that they take into account when evaluating your financial information. Just as important are your ability to show regular and unchanging employment as well as an assurance to the lender that whatever caused the financial adversity to start with is now over, so that you can afford your new mortgage payment once your loan has been approved to be modified.

If you are in foreclosure and are tired of the run-around from the bank or just need help understanding your options then you should speak to a bankruptcy lawyer. The California real estate market is the “perfect storm” for homeowners to bear a principal decrease through bankruptcy. A bankruptcy attorney can help people evalutate if they qualify for a principal reduction through bankruptcy chapter 13 with motions like (11 U.S.C. ‘ 522(a)) to strip a lien. Making any errors when it comes to filing bankruptcy can be very high-priced, so be heedful when selecting a bankruptcy attorney for a chapter 13. If you want help and have bankruptcy questions go to www.BankruptcyAttorneyinCalifornia.com.