Bankruptcy or Mortgage Modification: Which comes first?

I speak to prospective clients frequently who have a HAMP loan modification which has been finalized, and have paid their modified payments on time since, but have credit card debts still accumulating. In this scenario, filing a Chapter 7 bankruptcy to clear away credit card, personal loan, and medical debts should not adversely affect your modification. In fact, this strategy can work great.

However, one of the most frustrating things for homeowners seeking help through HAMP is the uncertainty surrounding approval. Many people try very hard, think they have an approval in place, and then get a letter weeks or months later explaining that the lender did not get required paperwork (many times after that paperwork has already been submitted).

In these situations, a lender can be forced into a sort of modification through Chapter 13 bankruptcy. In a Chapter 13, arrearages for missed payments can be spread out over time. Second mortgages can be cleared away entirely if the home is now valued less than the principal of the first loan. And lastly, the lender is told what is going to happen instead of dictating when or how you will be approved.

It is important to consider all your options before choosing the right path for you. Whether that’s filing a bankruptcy case or not, it is smart to sit down and become informed during a free initial consultation with an experienced bankruptcy attorney.