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As the mortgage crisis continues with no end in site, there are so many people facing foreclosure are also being forced into the option of bankruptcy as well. It appears that many homeowners who couldn’t come up with their house payments have been tapping into their credit cards and other personal lines of credit to get the cash that they need. Once the lines of credit and credit cards are maxed out, of course, these people find themselves in an even bigger financial mess. In one recent survey, credit card debts are at an all-time high and, if this disposition continues, our firm predicts that bankruptcy filings will continue to rise as they have over the last three years after the new bankruptcy laws were passed.

Recently, we’ve been meeting with many of homeowners who are contemplating bankruptcy but are also in the process of trying to get a loan modification with their lender because they have a foreclosure pending. In fact, we work with numerous attorneys who offer loan modifications. The loan modification lawyers tell me the banks are amping up their foreclosure efforts and denying more loan modifications due to debt to income ratios. What this means is that if you owe a lot in other debts (such as credit cards, personal loans, etc.) besides your mortgage, the lender may conceive that even although your mortgage payments are less after a loan modification in in place, it would still be difficult or impossible for you to keep your home because you have other debt obligations that must be paid (and a lot of people in foreclosure are also behind on all their other debts so these debts are showing up as collection accounts on their credit report). In other words, the bank may be telling you that given your current debt load, you simply cannot afford to keep your home, and they would rather cut their losses and foreclose on your home because they are left with no other option. Bear in mind that banks hate foreclosing on any home but will do so as a last resort.

Because of the monolithic number of foreclosures that the mortgage companies are currently dealing with, I find that a lot of lenders are slow these days in initiating the foreclosure process even when the borrower is already several months delinquent. still, in California, once a Notice of Default is filed against the property, the 90-day statutory period commences to run and the meter starts ticking. Unless the foreclosure is stopped, by filing bankruptcy, or other legal means, the lender only needs to give 21 days’ notice (by sending the borrower another document called “Notice of Trustee Sale”) after the 90-day period in setting a sale date for the property being foreclosed on. Filing bankruptcy, Chapter 7 or Chapter 13, will immediately stop the sale from going forward, and the bank will need court permission to continue with the process if mortgage payments are not being made. An experienced and knowledgeable bankruptcy attorney can explicate to you how Chapter 7 or Chapter 13 may help you save your property or at least postpone the foreclosure sale so that you can look at all other possible options. In Chapter 13, it is also possible to “strip down” or remove your 2^nd mortgage if the current market value is below the sum of the 1st mortgage.

Eliminating (or at least consolidating) your debts may improve your debt-income ratio and this may be what your lender would like to see when reviewing your application for a loan modification. Of course, this is just one of the factors that they take into account when evaluating your financial info. Just as important are your power to show regular and stable employment as well as an assurance to the lender that whatever caused the financial hardship to start with is now behind you so that you can afford your new house payment once your loan is modified.

If you are in foreclosure and are exhausted from the run-around from the bank or just need help understanding your options then you should speak to a bankruptcy lawyer. The California real estate market is the “perfect storm” for homeowners to bear a principal decrease through bankruptcy. A bankruptcy attorney can help people see if they qualify for a principal reduction through bankruptcy chapter 13 with motions like (11 U.S.C. ‘ 522(a)) to strip a lien. Making mistakes when it comes to filing bankruptcy can be very costly, so be heedful when selecting a bankruptcy attorney for a chapter 13. If you want help and have bankruptcy questions go to www.BankruptcyAttorneyinCalifornia.com.