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Attorneys Say Loan Modification Rules and Bankruptcy Complicate One Another

December 21, 2009

As Corona bankruptcy attorneys, we see clients every day whose financial problems are caused or exacerbated by problems making mortgage payments on time. The two issues are closely intertwined, as this Dec. 16 article from business publication Finance & Commerce shows. The article says bankruptcy lawyers like us have become frustrated by the federal Home Affordable Modification Program, but not just because mortgage servicers and lenders have dragged their feet on helping our clients. Attorneys in the article were also disappointed in HAMP because its rules allow bankruptcies to complicate loan modifications, and vice versa, causing painful delays for clients.

Under HAMP, mortgage lenders may not deny modifications to borrowers who have already completed a bankruptcy. However, it says nothing about how lenders may treat borrowers who are already in bankruptcy, or file for one during the loan modification process. That means some lenders are asking borrowers to sign a waiver of their right to file for bankruptcy, the article says, as a condition of requesting a loan modification. This can create sticky situations for borrowers, bankruptcy attorneys said. If a borrower has aggressive creditors other than the mortgage lender, it's impractical to wait. Yet mortgage lenders routinely ask borrowers to wait months and months for an answer or a permanent loan workout, lawyers complained. As a result, the two actions must be timed carefully. Some attorneys are also asking bankruptcy judges to make loan modifications as part of Chapter 13 bankruptcy plans.

Our La Habra bankruptcy lawyers like this strategy -- but it depends on the agreement of not only the judge, but also the mortgage lender. And as our loan modification clients' experience shows, lenders have little incentive to agree to a modification right now. People considering both a modification and a bankruptcy filing should absolutely talk with an attorney before taking any action. Those who qualify for Chapter 7 bankruptcies may be able to complete them in a few months and then pursue a modification, but this is a minority of bankruptcy filers. The majority may simply have to fight their lenders for a reasonably quick loan modification decision. In some cases, we have been able to force the lender's hand by filing a lawsuit -- or simply by joining the case, which puts the lender on notice that a lawsuit could follow.

Howard Law LLP represents Californians of all backgrounds who are ready to take control of debt they can no longer manage by themselves. Our Temecula bankruptcy attorneys handle people with all types of financial problems, including mortgages, credit card debt, medical bills and other very large obligations. We start every bankruptcy case by helping clients evaluation whether bankruptcy is truly their best option, because it's a major financial event that has real repercussions. If it's not, we can offer debt settlement or loan modification services, and sometimes help with a predatory lending lawsuit. If clients do choose bankruptcy, we stand by their sides throughout the process, from choosing between Chapter 7 and Chapter 13 to fighting off creditors, appearing in court and following through on a payment plan.

If you know you need help handling out-of-control mortgage debt, you should talk to Howard Law to learn more about your options. To set up a free, confidential evaluation of your case, you can call us toll-free at 1-800-872-5925 or send us a message through our Web site anytime.