When a loan modification is in progress, the debtor must continue making payments or face foreclosure by the lender. Even if you are negotiating a loan modification with the lender, the foreclosure process will continue. The debtor may believe they are negotiating in good faith with the lender to modify their loan when they receive a notice of foreclosure sale. At this point, the debtor panics and must scramble to find a means to stop the foreclosure.
Therefore, it is essential to always have a secondary plan, just in case the loan modification does not go through. If at all feasible, it is advisable to continue making payments while attempting to modify the loan. If you are unable to make the payments due to financial constraints, you may need to declare bankruptcy. Filing for bankruptcy will halt the foreclosure process. However, you must consult with a bankruptcy attorney to discuss your entire financial situation. When the automatic stay enters into effect, filing for chapter 7 bankruptcy will stop a foreclosure. The lender will file a motion for a relief of stay and resume foreclosure proceedings as soon as the motion is granted.
Some individuals may benefit from Chapter 7 bankruptcy if they have a substantial quantity of unsecured debt that makes it difficult for them to pay their mortgage. In many cases, eliminating a substantial quantity of unsecured debt will free up the additional funds required to pay for and maintain the secured property. In the majority of cases involving property, Chapter 13 bankruptcy is likely the best option. Chapter 13 allows a debtor to catch up on missed payments and possibly negotiate with the lender to modify the loan over the course of a three- to five-year payment plan. Filing Chapter 13 will also enable the debtor to control all other debts, including credit card debt. Depending on the arrangement of the payment plan and the debtor's income, unsecured debts that remain outstanding at the conclusion of the payment plan are frequently discharged.
Be proactive no matter what if you are facing foreclosure. Do not presume that the foreclosure will cease simply because you submitted a modification request. When you receive a notice of foreclosure, you should promptly consult with a bankruptcy attorney to determine your options for stopping the proceeding. Inaction can result in disaster, including credit damage and the loss of your property.
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