I Was Thinking About Bankruptcy. Would This Have An Effect On My Loan Modification? – Tim

“Dear Steve,

I have worked in auto sales for the last ten years and things have really gone down hill over the last few years. I was just let go at the begging of Feb. and have been collecting unemployment. I’m two payments behind on my mortgage and have a huge amount of credit card debt and unsecured loan debt. I have applied for a loan mod. at my bank but have not gotten an answer yet.

I was thinking about a chapter 7 or 13 at this point. Would this have an effect on the loan modification process

Tim”

I asked my friend Susan Nilon to answer your question for you. I wanted to make sure you got an answer as quickly as possible as I’m a bit backed up at the moment. I’ll be watching the comments on this question and be around to help if you need me.

Sincerely,


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Dear Tim,

Don’t give up on your loan modification just yet. It is not uncommon for the banks to be slow in response when it comes to working on your file. The squeaky wheel comes to mind in situations like this. I would make it a practice to call on a regular basis to follow up and politely remind the person working on your file that you are waiting for them. It’s easy for a bank to forget that you are more than a file on their desk. Just remind them that you are a person who is trying to do the right thing by them.

To answer your question about bankruptcy:

Chapter 7 allows you to erase all if not most of your unsecured debt. But it is strictly based on your income. This is the most common form of bankruptcy that is applied for in the United States. The process takes only a few months.

Chapter 13 allows you the chance to reorganize your debt and pay it back- usually over a five year period . The courts will set up a payment structure that you are required to meet. If you are not able to keep up with the payments, then you will end up back in court to either restructure the payments again, or apply for Chapter 7.

In order to see which one you qualify for, you will be subjected to what is called a “Means Test”. This refers to determining the eligibility for relief for people who have sufficient financial means to pay a portion of their debts.

A bankruptcy attorney is better equipped to help you decide which one to apply for. Consultation with the attorney is free and confidential,. There is no harm in talking with the attorney, and in fact the attorney may suggest some strategies for helping move the loan modification along.

You should also know that part of the requirement for bankruptcy will involve credit counseling. The new legislation requires that all individuals in either chapter 7 or chapter 13 complete an “instructional course concerning personal financial management.” If you do not complete the course, it will be grounds for dismissal.

On your question of how it will affect your loan modification, I am inclined to think that it will not disrupt your efforts. It would make total sense that you would be asking the bank for some help at the same time you are trying to rework your other debt. But the attorney can best answer that question.

In the meantime, keep working on your bank. Remember it is also beneficial to them to find a way to keep you in your house. At a time when the unemployment rate is at an all time high and the foreclosure rates are right there with it, the banks are very busy. Your bank knows you are in trouble because you haven’t been able to make you payments. So just remain in touch and remind them in a polite way that you are waiting for their response. And if you feel that you are not getting anywhere, then ask to speak to someone else. You will get your answer.

If you have any other questions, please feel free to contact me again.

Sincerely,

Susan

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