By Ryan C. Wood

If you have a house that is underwater, and you have problems making your monthly payments, or you know you will have problems making your monthly payments in the future, chances are you have or will be trying to obtain a loan modification.  For those of you that are seriously delinquent in your monthly payments, you may have tried to hire a loan modification company that promises to help you obtain a loan modification.  Be sure you are hiring a reputable loan modification company.  California law does not allow anyone to receive upfront fees when providing loan modification services.  If you have paid upfront fees you are not dealing with a reputable loan modification company and they have violated California law.

Far too often whether you are trying to obtain a loan modification or hired someone to help, the only result you see is the fact that your house is edging closer to foreclosure than it is to a loan modification.  One of the biggest trends that we currently see today is a homeowner filing for bankruptcy the day before the foreclosure date to try and stop the foreclosure sale.  Most of the time, they are filing their bankruptcy case without an attorney, so they are unaware of what needs to take place to correctly file a bankruptcy case. There are a lot of issues involved in a scenario such as this, and finding a bankruptcy attorney that can guide you in these rough waters may be what you need.

Issue #1 – Credit Counseling Course

As discussed in “What are the Required Courses to File Bankruptcy” the credit counseling certificate is mandatory.  You need to complete the class and obtain the certificate prior to filing for bankruptcy, or your case will be dismissed.  Most people that file for bankruptcy by themselves do not know this, and therefore do not know that their case is doomed to fail from the start.  If your case is dismissed, the mortgage lender can proceed with the foreclosure process.

Issue #2 – Dismissal of case due to lack of paperwork

If you file a bankruptcy petition to stop the foreclosure you probably did not have an opportunity to file all the schedules and forms that are required in your bankruptcy case, such as Schedules A through J, Statement of Financial Affairs or Means Test.  The Bankruptcy Court normally issues an order in your case to file all missing documents within 14 days from the date of the order or your case will be dismissed.  You may file a motion with the Bankruptcy Court to ask the Court to extend the deadline to complete the bankruptcy petition.  If the Court grants your motion, you have a little more time, normally 30 days.

Issue #3 – Short term effect on foreclosure process

Even if you file the credit counseling certificate, and file all the paperwork, bankruptcy only acts as a temporary stay on the foreclosure process.  If you filed a Chapter 7 bankruptcy, your mortgage lenders can file a motion to lift the automatic stay and proceed with foreclosure proceedings.  Your bankruptcy lawyer will have to spend the time and money to oppose the motion for relief from stay.  If you filed a Chapter 13 case, and you do not make monthly mortgage payments to your mortgage company, your mortgage lender may ask for relief from the automatic stay and continue to foreclose on your home.  If the Chapter 13 plan filed does not provide for your missed mortgage payments, your mortgage lenders may file an objection to the confirmation of your case and seek relief from the automatic stay.  If the objection is not resolved, your Chapter 13 plan will not be approved/confirmed and your case will most likely be dismissed.  The bottom line is this:  unless you can provide for some way to pay back all of the arrears in the plan, or come up with some payment plan that will satisfy the lender, your case is doomed.

After you overcome these obstacles, and your bankruptcy case is still in good standing, you now have some breathing room to try to obtain a permanent loan modification while you are in a Chapter 13 plan.  It may be easier, since most of your debt will be taken care of in the Chapter 13 plan, but there are no guarantees that you will receive a loan modification.  Be sure to keep copies and records of all communications and paperwork sent to the lenders to prove that you have indeed provided the information to them in the event the paperwork is claimed as lost or not received.

If you need the help of an experienced bankruptcy attorney to help you navigate the complications of a bankruptcy case to achieve the long term goal of saving and keeping your home we can help.