Two weeks ago Neil Borofsky, the Special Inspector General for the government’s bank bailouts, called the government’s HAMP Mortgage Modification Program an abysmal failure. A Bill has been introduced in Congress to scrap the entire program and redirect the HAMP funds to building jobs.
A typical HAMP Loan Modification usually takes 6 months to 2 years (yes, 2 years) to complete, and only 7% of all loan modifications are ultimately successful.
In contrast, a Loan Modification conducted within a Chapter 13 Bankruptcy case can take approximately 2-3 months, and the success rate is closer to 50%.
Additionally, a Chapter 13 Bankruptcy case settles all other debt as well: credit card debt, business debt and medical bills. If a second mortgage is completely underwater, that mortgage may be “stripped down” to an unsecured debt and paid off for as low as two cents on the dollar.
Every Bankruptcy Judge from Brooklyn to Poughkeepsie has now adopted the “Loss Mitigation Procedures” to facilitate mortgage modifications within a bankruptcy case. The Loan Modification is tightly supervised by the Bankruptcy Court Judge. The Court first issues a tight and short time frame to complete the process. Each attorney is provided with the name, address and e-mail address of an assigned bank negotiator. The Court will hold regularly scheduled hearings, and require the parties to submit affidavits of progress with the Court.
Most importantly, the Bankruptcy Court prohibits a bank from proceeding with foreclosure while the Bankruptcy case proceeds.
A well planned Chapter 13 bankruptcy case can allow a family to enter into a comprehensive financial plan that will lower its mortgage payments, erase most, if not all, credit card debt and medical bills, and pay off a second unsecured mortgage, while preserving a family’s pension and retirement accounts in full. Most importantly, it can save your home.