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Some Believe Bankruptcy Is More Effective Than Pushing for a Loan Modification

December 22, 2010

As Moreno Valley consumer bankruptcy lawyers who also represent clients seeking loan modifications, we were very interested to see a recent article comparing the two areas of the law. The Pittsburgh Post-Gazette reported Dec. 20 that some attorneys believe filing for bankruptcy is a better way to handle an impending unfair foreclosure than trying to negotiate with the lender, or even suing. One attorney said bankruptcy is simply easier, because the bankruptcy process includes enforcement tools that loan modifications do not have -- modifications "have no teeth." Lawyers also said lenders are rude and unhelpful, citing horror stories by clients tangled in red tape for months. Instead, at least some attorneys said they were more likely to suggest a Chapter 13 bankruptcy, as long as the client had a steady income.

The article repeats the story that real estate observers have all become familiar with: lenders lose paperwork repeatedly, force borrowers to repeat their story to a new person with every call, fail to take action and drag out the process for months while borrowers lose money or fall further and further behind. Bankruptcy lawyers said the process was frustrating, undignified and had only a 50-50 chance of success, thanks in part to a lack of enforcement mechanisms for loan modifications. Allegheny County, where Pittsburgh is located, has a foreclosure mediation program, but it only comes into play after the lender formally files the foreclosure. By contrast, a bankruptcy case is a court case with strict deadlines and a judge serving as a neutral third party who can review both sides' claims. In a Chapter 13 bankruptcy, one attorney said, borrowers can make a plan to catch up on their payments without the pressure of an impending foreclosure.

Our Temecula personal bankruptcy attorneys agree -- to a point. Bankruptcy is one solution to a threat of foreclosure, but it's not the only solution and isn't the right one for everyone. A bankruptcy comes with serious consequences -- it will do serious harm to the filer's credit for seven years, making it hard to get auto loans, start a business or even get a new cell phone contract. For people who are under severe pressure from unpaid debt, this is usually a worthwhile trade-off for getting a clean slate and a chance to start over. However, it may not make sense for people whose only debt problems are with their mortgages. They should also consider whether their mortgages can be challenged in court due to predatory lending, falsified paperwork (robo-signing) or other legal problems. And as the article points out, a payment-plan Chapter 13 bankruptcy isn't available for people without a steady income, who can still file for Chapter 7 but may not be able to save their homes this way.

Howard Law PC represents homeowners and others who are pursuing personal bankruptcy or loan modifications. If you're in this situation, we urge you to contact our Paramount individual bankruptcy lawyers for a free, confidential case evaluation. Everyone's finances are different, and it pays to understand the potential financial consequences of a drastic choice like bankruptcy before you make it. However, if your situation is right, we believe bankruptcy is one of the most responsible ways to handle severe debt. In a bankruptcy, you're not walking away from your debts -- you're addressing them through a payment plan or by selling most of what you own, and sacrificing your financial independence. In exchange, you get a chance to start again.

If you're considering bankruptcy as a way to handle increasingly severe debts, you should call Howard Law to see how we can help. To learn more or set up a free consultation, call us toll-free at 1-800-872-5925 or send us a message through the Internet.