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.