As the mortgage crisis continues, more and more people facing foreclosure are also being forced into bankruptcy. It appears that a lot of homeowners who couldn’t make their mortgage payments have been using credit to get the cash that they need. Once the credit cards and the credit lines are maxed out, of course, these people find themselves in an even bigger financial mess.

Lately, I’ve been seeing a lot of homeowners who are considering bankruptcy but are also in the process of trying to get a loan modification with their lender because they have a foreclosure pending. A lot of them are telling me that their lender has told them that they are not qualified for a voluntary loan modification because of their high debt-income ratio. What this means is that if you owe a lot in other debts besides your mortgage, the bank may think that even though your mortgage payments are lower after your loan is modified, it would still be difficult or impossible for you to keep your home because you have other debt obligations that must be paid Although banks hate foreclosing on any property, they will do so as a last resort.

Because of the massive number of foreclosures that the banks are currently dealing with, I find that a lot of lenders are slow these days in initiating the foreclosure process even when the borrower is already several months delinquent. However, in California, once a Notice of Default is filed against the property, the 90-day statutory period begins to run and the clock starts ticking. Unless the foreclosure is stopped, by filing bankruptcy, or other legal means, the lender only needs to give 21 days’ notice after the 90-day period in setting a sale date for the property being foreclosed on. Filing bankruptcy, Chapter 7 or Chapter 13, will immediately stop the sale from going forward, and the bank will need court permission to continue with the process if mortgage payments are not being made. An experienced and knowledgeable bankruptcy attorney can explain to you how Chapter 7 or Chapter 13 may help you save your property or at least postpone the foreclosure sale so that you can look at all other possible options. In Chapter 13, it is also possible to “strip down” or remove your 2nd mortgage if the current market value is below the amount of the 1st mortgage.

Eliminating your debts may improve your debt-income ratio and this may be what your lender wants to see when considering your application for a loan modification. Of course, this is just one of the factors that they take into account when evaluating your financial information. If you are in foreclosure and burdened with a lot of debts that you can no longer afford to pay, let me help you evaluate your options.

Sacramento Bankruptcy Attorney Tonya Hernandez has worked with clients across Northern California to help them work through their financial matters. If you or someone you know has questions regarding or would like to discuss California Bankruptcy Laws, contact Tonya Hernandez at Bowman & Associates today at (916) 923-2800 for your free initial consultation. We can also schedule night time and weekend appointments.

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