The following is a true story. I have changed names and the like to protect the privacy of the parties. That being said, this story is true and reflects how the use of both a bankruptcy and loan modification can be used to save one’s home from a pending foreclosure sale.
Ms. X came into our office with a considerable amount of credit card debt and a looming Sheriff’s Sale. She has just been rejected by her lender for a loan modification which she had attempted on her own. Losing the home was not an option for Ms. X as she has no other place to live and her credit was bad. Her credit card balances exceeded $50,000.00 and hadn’t been paid in months.
I sat down with Ms. X and we went thru a bankruptcy petition. Based on her facts and circumstances, we determined it was best for her to begin with the filing of a Chapter 7 Bankruptcy for several reasons:
- First, this filing would halt the Sheriff’s Sale due to the Automatic Stay provision of the bankruptcy code.
- Secondly, the Chapter 7 bankruptcy would discharge her credit card debt and help balance out her debt-to-income ratio which would likely help with any future loan modification attempt.
- Thirdly, the bankruptcy would help protect the client from any deficiency suit or 1099C exposure in the event the home was ultimately lost to foreclosure.
- Lastly, there are times that a bankruptcy filing will bring the lender back to the loan modification “table” for a number of different reasons.
The Chapter 7 bankruptcy was filed for Ms. X. We decided that we would begin a new loan modification for her a few weeks after her 341A hearing. As I have noted in an earlier blog, most Chapter 7 341A hearings are scheduled approximately one (1) month after their petition is filed. At the 341A hearing, the trustee was advised of our intentions to pursue the loan modification and we asked the trustee to abandon his interest in the property as soon as reasonably possible.
The 341A hearing went according to plan and a few weeks later Ms. X appeared in my office to tackle the loan modification. As you can imagine, Ms. X was apprehensive about attempting another loan modification after receiving a denial a few months earlier from this very same lender. Despite her trepidation, we completed all of the necessary forms and submitted them along with all of her supporting documentation.
I am happy to report that after two (2) months of going back and forth with the lender, Ms. X was offered a trail loan modification. After making her three (3) month’s of trial payments, she was offered a permitted modification by the lender. Years later she is still living in and enjoying her home. This proves that good things happen to good people. I was glad to help.