Bankruptcy

Foreclosure, HAMP & Chapter 13 Bankruptcy

By Kevin Gipson, New Orleans Bankruptcy Attorney

Before the Home Affordable Modification Program (HAMP) came into existence if a client’s house was in foreclosure you had two basic options:  Either file a Chapter 7 bankruptcy and give the house back to the creditor, or file a Chapter 13 and pay the arrearages though a Chapter 13 Plan.  Very rarely would a creditor voluntarily agree to modify a loan.

With the introduction of HAMP borrowers have the hope of a modification of their loan dangled in front of them as a potential option to bankruptcy.

I, for one, believe that HAMP is a false hope.  I am not alone in this view of HAMP as a false hope.

Why do I call HAMP false hope?

1. The percentage of individuals that have been approved for a HAMP loan modification are in the single digits; and,
2. While the loan is being reviewed for a modification, the creditor is under no obligation to stop or delay a foreclosure proceeding.  Unfortunately, many borrowers have an incorrect belief that the foreclosure process will stop.

Add to the false hope the fact that the changes to the bankruptcy laws from the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) make it difficult to file an emergency bankruptcy.

Specifically, BAPCPA requires that the debtor undergo pre-filing credit counseling before his bankruptcy can be filed.  Failure to do so results in the bankruptcy being dismissed.

Imagine that you are in the process of a HAMP modification review and at 2:00 p.m. on the day before your house will be sold at a foreclosure you hear from the creditor that you don’t quality for a modification.

Will you be able to find an attorney that can meet with you, get your credit counseling completed and get an emergency bankruptcy petition filed before the foreclosure?

Possibly!

What if you learn at 11:30 a.m. that the application has been denied and the foreclosure sale was for noon of that same day?

Do these two scenarios sound far fetched?

Well, I met with two clients last week with these exact same facts.

Both had wanted to keep their houses.  I could only help the first one stop the foreclosure.

Don’t rely on being one of the chosen few that will get a HAMP loan modification to save your house if you are in foreclosure.

Consult with an experienced bankruptcy attorney about your options and, if necessary, be prepared to file bankruptcy to protect your home.

Full post as published by Bankruptcy Law Network on September 01, 2010 (boomark / email).