On March 4, 2009, the Department of Treasury announced the Home Affordable Modification Program or (HAMP) for short. Its stated mission was to help struggling homeowners avoid default by reducing payments to qualified borrowers. A loan modification could save your home from foreclosure if the mortgage company lowers your interest rate (the most common way), which will in turn lower your payment. In extremely rare circumstances, the mortgage company can reduce your principal balance, although I have only seen this happen in one circumstance.

The problem with loan modifications is that they are hard to get the mortgage company to actually execute one; however, as a Chicago Bankruptcy Attorney I have seen some borrowers actually having a fully executed loan modification. The documents required to obtain a loan modification are extensive and include proof of all income from all sources, tax returns, a financial hardship, among others. Often a client will come in for a bankruptcy consultation with a looming foreclosure and the mortgage company and the borrower have been speaking about a loan modification for a long period of time. Approximately, only 6-10% of loans are actually modified and there are a slew of foreclosures on the horizon according to this Hamp Update.

Chapter 13 Bankruptcy is the safest way to protect a home from losing the property in foreclosure. Although, a debtor may not be able to change their interest rate, their payment, and their principle balance in most cases the Debtor can repay any mortgage arrears up to five years. Chapter 13 will immediately stop the foreclosure! In addition, I often will file a Chapter 13 for a client and the mortgage company will then ask to speak to the boroower in order to do a loan modification.

However, in some cases it makes more sense for the borrower to let the home go in a Chapter 7 Bankruptcy if they owe much more than the property is worth and/or they cannot afford the payments for the home. A good Chicago Bankruptcy Attorney will go through all of your options, and I will not do any less than that. Remember, lose your debt keep your dignity! If you have questions or wish to set up a free consulatation with an experienced Chicago bankruptcy lawyer please feel free to call me at 312-489-8182!

Marc