Can I Get A Loan Modification While In A Chapter 13 Bankruptcy?

Doing Research About Bankruptcy on a LaptopYes, you may.  Please contact your bankruptcy attorney and request a release form allowing the mortgage company to discuss your loan with you.  Since you are in an active bankruptcy, the bankruptcy code protects you from being contacted by any creditors.  This protection limits the contact between the debtor and creditor, but allows for mediation by an attorney.  The release form will allow you to work directly with the mortgage institute.

Once the mortgage company has received the form and acknowledged the permission to discuss modification, you will need to start on the HAMP form (Home Affordable Modification Program).  Your mortgage company may have a specific site for you to access all the necessary forms.  I encourage you to explore your bank’s website for information concerning this program.  If this endeavor proves fruitless, check out the Departments of the Treasury & Housing and Urban Development’s Making Homem Affordable website.  There are links to help you prepare the initial package to present to your mortgage servicer.  It is very important to prepare this paperwork thoroughly and precisely.  Make sure to document any discussions with your mortgage company and to also make copies of everything.  Once the initial package is together and absolutely complete, you will send the paperwork via certified mail (with a return receipt.)

Now is the lovely waiting game.  Although it is hard, you may need to be very patient with your mortgage company.  A phone call to check on the status of your modification every month, or every two weeks if necessary, should suffice.  IMPORTANT:  Continue to make your Trustee payments for your Chapter 13 bankruptcy! If you fall behind on your payments to the Court, your case will be dismissed and you will no longer be under the protection of the Bankruptcy laws.

Once you have heard from the mortgage company, you will contact your attorney again.  You will need to provide your attorney with the confirmation of the agreement to the modified payments.  The Bankruptcy Court must approve the loan modification before it goes into effect!  A Motion to Incur Debt must be filed on your behalf in order for the modification to be considered.  It may take up to 30 days before you will receive a response from the Bankruptcy Court.  After a response is received, your budget and plan payments will need to be revised by your attorney.

Note: before you decide to endeavor on this extensive project, you must realize: when your attorney files a motion or revises your plan on your behalf, there are attorney fees that will be added into your plan.  So before you commit to a modification with your mortgage, make sure the reduced payments are worth the hassle.

Mortgage Companies Are Taking A Long Time to Foreclose, Isn’t That A Good Thing for Me?

As discussed in a previous blog post, it is taking mortgage companies an extraordinary period of time to foreclose on properties these days.  Unfortunately, the delay in the foreclose process seems to be a “double-edged sword” depending on the homeowners’ goals.

Mortgage Company Foreclosing on House

In some cases, it is a benefit to the homeowners, since they may be able to live in their home for a year or more before the foreclosure is completed.  This delay allows the family to stay in “their” home and allows their children to finish the school year in a familiar setting with friends and teachers they adore.  In other cases, it is purely a financial decision.  The delay provides time for the family to save money, since they are not paying the mortgage loan on the house or rent on another property.  When the day comes to move out of the home, the family has the funds needed for moving costs and for the security deposit and rent on the new apartment or house.

On the other hand, the family down the street has made the decision to move on with their lives and have already moved out of the house.  The house represents a negative time in their lives and they want a fresh start in new surroundings.  In other cases, a member of the family has accepted a new job in another state, so they have no option but to move.  These homeowners want the mortgage company to foreclose as soon as possible so this chapter of their lives can be closed.  The family has moved on, unfortunately the house is still legally their responsibility.  These families receive stack after stack of letters from the mortgage company offering workout plans and other alternatives to foreclosure.  On top of that, the homeowners association (HOA) is sending threatening letters regarding tall grass growing in the law, mosquitoes in the swimming pool, and delinquent assessments, dues and fees.  The HOA is threatening to file a lawsuit against the homeowners if they do not pay the debt.  Pay a debt to the HOA for a house they do not live in?  Yes, the HOA assessments, dues and fees are still the homeowners’ financial responsibility until the property is no longer in their names, so the HOA debt must be paid.  As the old saying goes, these families can’t get the “monkey, aka house, off their backs”!

As a result, the delay in foreclosing on a house can be a good or bad thing depending on the homeowners’ goals.  As the homeowners, you can ask the mortgage company to expedite the foreclosure sale but often that is unsuccessful.  You can also look at signing a deed in lieu of foreclose or possibly quit claiming the property to the mortgage company.  These options will be covered in a later blog.

Why Is It Taking Mortgage Companies So Long to Foreclose on Houses?

This is a question that many people are asking these days, why is it taking the mortgage companies so long to foreclose?  As bankruptcy lawyers we deal a lot with people who are trying to save their homes as they enter the foreclosure process. So knowing how long it takes until a home enters into the foreclosure process is important for many of our clients. There are several reasons for the delay in foreclosures.

Question About Bankruptcy

Needless to say, the slow-down in the economy has resulted in the loss of numerous jobs throughout the country.  For those lucky enough to keep their job, deep pay cuts have often occurred.  Add predatory lending practices from a few years ago and it all spells disaster for countless Americans and the lending institutions or mortgage companies.

Unfortunately, many Americans found they could no longer afford the American dream of a home.  With no way to make their mortgage payments, many people began defaulting on their mortgage loans and lending institutions began the process of foreclosing on many homes.  As the economy has continued to suffer, the sheer number of foreclosures has increased to a point that mortgage companies are simply overwhelmed by the volume.

As you may have read or heard in the media, mortgage companies have been heavily scrutinized regarding their foreclosure practices over the past few years.  The practice referred to as “robo signings”, where mortgage company officials signed off on foreclosure proceedings without fully investigating the accuracy of the documents they signed, has been investigated by federal regulators as well as state attorney general’s from all 50 states.  In several cases, bank officials admitted to signing foreclosure documents without reviewing them or verifying their accuracy.  Although this practice is not condoned, most of us understand how this may have happened.  The officials signing the documents may have believed their signature was merely a formality, and that the documents had already been verified for accuracy before reaching their desk.  So with a pen in hand, and a huge stack of foreclosures on their desk, the robo-signing began.

The investigation into robo-signing foreclosures disclosed many disturbing scenarios.  There were cases where homeowners were actually not behind on their mortgage payments but were facing foreclosure due to errors in paperwork.  In other cases, the homeowners were in the process of or had recently completed loan modifications with the mortgage companies while on a parallel path to foreclosure.  Needless to say these practices outranged many people.  The outcry resulted in the government’s investigation into the foreclosure process and then a self-imposed moratorium by many mortgage companies.

If you are like most homeowners, your mortgage company has changed at least once since you obtained your loan.  In many cases, the loan has changed hands two, three and even four times.  As a result, paperwork has often been misplaced or simply lost during the process.  These issues may delay the foreclosure process, since the legal documents needed to complete the foreclosure cannot be located.

As a result of these issues and others, most mortgage companies and lending institutions are completely overwhelmed with the sheer volume of foreclosure files.  As a result, it is taking some mortgage companies a year or more to foreclose on a home.  Obviously the timeframe varies, so there is no guarantee it will take the mortgage company that long to foreclose on your home!

Can A Creditor Freeze My Bank Accounts If I File Bankruptcy?

Family Riding Bicycles TogetherOnce you default on a payment to a creditor, they then have their legal rights to pursue means of collection from you.  When you have something secured, such as a house or a car, if you ignore their repeated attempts of collection, the creditor can simply come and take back what was theirs in the first place; but what if it’s for a credit card or other unsecured debt?  Many people have the misconception that the credit card companies cannot do anything to them personally and are just “out” on the money that is owed to them.  Wrong!

Once you default on a credit card, the credit card company will send you to a collection agency who will attempt to collect the debt.   When they cannot collect the debt after several attempts they will “charge off” the debt and send your account to an attorney (if they choose to, not all defaulted credit cards are sent to attorneys).   The law firm may make several attempts to collect the debt as well and, after not being able to collect on the debt, they will file a civil complaint with the court for a judgment on the debt; meaning that it is court ordered that you pay that debt back.

Once the judgment is against you, the attorneys for the credit card company will send you something called a Notice of Right to Have Exemptions Designated.  At this time you will list your personal property and attempt to protect it from the creditors whom are suing you.  Your personal property in this matter would consist of homes, vehicles, bank accounts and such.  Most people will either fail to fill out the paperwork or do so improperly. If not completed correctly or if all of your property is not protected, you will receive something called a Writ of Execution which allows the sheriff will come to seize any unprotected assets.  So what does this have to do with your bank account? If you did not properly exempt your bank accounts the sheriff will contact your banking institution(s) and have your account(s) frozen.

Filing bankruptcy will take care of the debt of the judgment but does not automatically take care of any repercussions of the judgment.  In the example of a frozen bank account, your bank account would not be unfrozen simply from filing a bankruptcy; the sheriff who ordered the account to be frozen must take additional steps. The sheriff must receive proof of your bankruptcy filing and contact the banking institution and order the account to be unfrozen. That could take several days which means you could go days without access to money within your bank account.

Although a creditor must take several steps to freeze a bank account – they are able to freeze a bank account after they obtain a judgment if the proper steps are not taken to ensure your property is protected.

 

Can I Still Tithe or Give to the Church If I File Bankruptcy?

There is no doubt about it, bankruptcy will (at least for the short term) have an effect on your everyday life where finances are concerned – from your living situation, the way your bills are paid, how you can get credit and so on and so forth; but does it also effect being able to tithe or make donations to your church?

Lady Justice with the Sun Behind Clouds

Typically the answer is ?no, you should still be able to tithe and contribute to your church?. In your monthly budget there is a specific place for you to list the amount that you plan on giving to the church in the future. There is also an area in the petition to list all gifts/donations made to the church within one year before filing bankruptcy and that average will also be used in your means test for qualifying for the bankruptcy.

Keep in mind though, the bankruptcy Trustee will allow the tithing or charitable contributions if there is a history of giving.  Let me explain why. The bankruptcy courts are worried about people who have too much disposable income each month (which could determine wither they file a Chapter 7 bankruptcy or Chapter 13 bankruptcy) all of a sudden “finding Jesus” as a way to dispose or get rid of that disposable income problem. If you have a history of giving to the church then you usually will have no problem with the bankruptcy Trustee. However, if you decide to start giving large amounts of charitable contributions to the church, for the first time, at the same time you decide to file bankruptcy the courts could have an issue with your newfound religious yearning.

If you have been tithing to the church the bankruptcy Trustee or bankruptcy courts may require a written letter from your church (or any charitable group for that matter) showing you have been giving the amounts stated in your bankruptcy petition. The bankruptcy courts also look at what percentage of your income you are giving to your church each month. Your contributions have to be within reason.

If you are someone who tithes or donates to your church on a regular basis you will need to make sure that these donations/gifts are listed in your monthly budget. Also, you may want to go ahead and gather copies of any payments you made to your church within the last year just in case they are needed or requested at a later time.