Until 2009, if a client came into our office and was behind on his or her mortgage, the only real solution was Chapter 13. The homeowner could resume making mortgage payments directly to the lender the month after the bankruptcy was filed and catch up on the mortgage arrears over a period of three to five years. There was pretty much nothing that we could do to lower interest rates or mortgage payment unless the bank was willing to work something out with the borrower.
Now, the landscape is very different. The homeowner who is behind on a mortgage by even a few months can seek a loan modification and, very often, reduce the monthly payment and interest rate. It is not easy to accomplish, and there are definitely a lot of con artists (regrettably, even some attorneys) promising results that cannot be delivered. However, in the right case, the homeowner will be approved for a loan modification and can avoid chapter 13 altogether — or perhaps file chapter 7 instead to deal with non-mortgage debt.
I am amazed that chapter 13 lawyers are still filing bankruptcy cases for clients with obviously terrible mortgages. The better way to approach the situation is to have the mortgage reviewed by a qualified mortgage modification attorney first. If the mortgage cannot be modified, then chapter 13 may be appropriate but only as a last resort.
Homeowners should be made aware that even if they are in an active chapter 13 case or an active foreclosure, they can still be reviewed for both HAMP and traditional mortgage modifications. It is almost never too late for such a review, and we accept referrals from attorneys throughout Western New York of clients that are interested in pursuing loan modification options.