A large number of Americans are facing foreclosure everyday ever since the economic downturn back in 2007 real estate prices have continued to drop making most Americans upside down on their mortgages. When the real estate market collapsed, the government responded with a federal loan modification program to help strapped debtors from losing the family home. The only problem with the program was it was a complete failure. Only 30% of those people that applied were granted a loan modification. While people were waiting to hear for approval, the banks continued on with their foreclosure. It was like a horse race to the finish and if the person didn't get the loan, most likely they would lose their home. Many of these folks were forced into filing bankruptcy as a way to slow the entire process down and make some rhyme or reason with this process. So when someone asks her bankruptcy attorney, Will loan modification stop foreclosure? The answer would be, not really, unless the loan was approved and they now could afford to keep the property.
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There is a lot of misinformation out there of what a loan modification will do. It won't stop foreclosure, it won't remove unpaid back payments and it won't reduce the principal amount owed on the home. These are the two biggies that are the reason that most people apply for the program. In actuality, if someone wants to do some negotiating on their home loan a Chapter 13 bankruptcy might be a better choice.
It might be a better idea to get the idea of the loan mod out of your head and consult a bankruptcy attorney to learn how to stop foreclosure legally. Filing Chapter 13 bankruptcy shares the power of Chapter 7 with the automatic stay. When filing for bankruptcy, and automatic stay is put in place stopping all collection and legal activity against the debtor. And yes this does include stopping foreclosure. In fact, this will not only stop foreclosure but any other legal activity like lawsuits, wage garnishments and judgments. If the creditors need to talk to you, they will have to do it through the bankruptcy attorney and court.
Now, many bankruptcy attorneys are using the power of Chapter 13 bankruptcy to get back to the negotiating table with lenders. With a Chapter 13, the debtor and their bankruptcy attorney are required to come up with a feasible repayment payment plan that will last 3 to 5 years. Debts are paid by priority, so secured debts get the first fruits, while unsecured get whatever's left over, if any. In today's upside down real estate market many people have taken out lines of credit or seconds on their home. If the value of the home has reduced under the balance of the primary mortgage, the bankruptcy attorney can file a motion with the court to strip the liens of the seconds and thirds on the home. This in essence, will make these debts unsecured and eligible for bankruptcy discharge at the end of the Chapter 13 payment plan. In today's real estate foreclosure frenzy, this has become an ace in the hole for many debtors. This is a complicated process and should be discussed with a bankruptcy attorney experienced with Chapter 13 bankruptcies. Just as we discussed, there are ways to stop foreclosure, but loan modification is not a good one.
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