Loan Modifications are a hoax, don’t wait on one to file for bankruptcy

I get phone call after phone call where people want to file for bankruptcy and continue to work with their lender on obtaining a loan modification. The problem is that once you file the lender has to stop directly working with you because they are a creditor and to continue on negotiations during the bankruptcy process for three months in a chapter 7 is a violation of the automatic stay.

Should this prevent you from filing bankruptcy? In my opinion, absolutely not.

Getting a loan modification of any substance for most people is a fairy tale. I can tell you more people that I know who have had to re-file paperwork a million times because the bank lost important documents, than the number of people that have got meaningful loan modifications. In my mind, its just a way for the banks to prevent house values to plummet further during this crisis. They keep your foreclosure at bay by tricking you into believing that they will be working on your loan modification. I have had clients that I tried to get loan modifications for over a year ago and still nothing has come of it. I would never take a loan modification again in my life and to advise a client to wait on filing for bankruptcy for the bank to modify your loan, I think should be negligence per se. I understand people wanting to keep their homes and you can in a 13 even if you have several back payments that you need to make good on. In a 7 you can keep your home but only if you remain current so that is part of the problem with this whole loan modification debacle. You have to be behind on your payments to get a loan modification typically so to file chapter 7 and keep your home, you are going to have to get caught up quick. Many people can’t so they will lose their home but remember you wouldn’t be modifying your loan unless your house was completely underwater. The bank would never do it. In my opinion we should make the bank show their hand and get through this housing crisis quicker. All the banks are doing is stalling a lot of people out so that house prices can artificially rise for a short period of time and then they will unload all this shadow inventory for higher prices. I think the likelihood of you getting a loan modification is close to 10%, the rest of you are holding your breath for something that will most likely never be realized.

Maybe I’m jaded from my own experience in dealing with the banks and the number of clients that I see long after the loan modification process started and never worked. I’ve seen banks offer loan modifications to clients after their bankruptcy as they’d rather have them in the house then have to sell it at such a loss.

Don’t let a potential loan modification stall you from filing bankruptcy which I guarantee will give you the results that you need within 4 months.

Frequently Asked Questions: Debt Consolidation in California
How does debt consolidation affect credit scores?

Initially, it might cause a slight dip due to credit inquiries. However, consistent payments can improve your credit score over time.

What is the difference between debt consolidation and debt settlement?

Debt consolidation involves taking a new loan to pay off debts, while debt settlement is negotiating to pay less than you owe. Settlement can negatively impact your credit score.

What are secured vs. unsecured debt consolidation loans?

Secured loans require collateral (like a house or car), usually with lower interest rates. Unsecured loans don't require collateral but typically have higher rates.

Is debt consolidation right for me?

It depends on your total debt, interest rates, credit score, and payment capability. It's suitable if you can pay off your debt within five years and secure a lower interest rate than your current debts.

Should I consider long-term financial planning?

Yes, debt consolidation should be part of a broader financial strategy including budgeting, cutting expenses, and building an emergency fund.

How do Chapter 7 and Chapter 13 bankruptcies in California differ?

Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 allows debt restructuring over a set period, usually three to five years.

Can my spouse's bank account be garnished for my debt?

Bankruptcy laws offer protections against such actions, but specifics depend on individual cases and state laws.

How can I learn more about my options?

Consulting a California bankruptcy attorney can provide clarity. Firms like The Law Offices of Christopher Hewitt offer free consultations to explore debt relief paths.

Contact Information