In 2010, the US government reported that there were over 1 million foreclosures in America. Along with that fact was another disturbing number, that there were recently 3 million foreclosure notices sent out showing that 2011 will be another record year. Last year many news agencies reported that the market had bottomed out and the real estate market was getting better. Looking at these numbers it sure doesn't seem so. With so many Americans upside down on their house, owing twice as much as the house is worth, there has been a huge rush to get loan modifications to lower their loan balance and along with that, lower their monthly payments, making it more affordable for these people while they're trying to avoid foreclosure.
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When a loan modification is in the process the debtor needs to continue making the payments or the lender can foreclose on them. The foreclosure does not stop just because you're working on a loan modification with the lender. The debtor might think they are negotiating in good faith with the lender to modify their loan when all of a sudden they get a notice of foreclosure sale in the mail. This is where the panic sets in and the debtor has to scramble to find a way to stop the foreclosure.
That's why it's always important to have a backup plan, just in case the loan mod doesn't go through. It's a good idea if at all possible to continue making the payments while you're attempting to modify the loan. If you are not making the payments because you can't afford it the solution might be filing bankruptcy. Filing bankruptcy will stop a foreclosure. But you will need to speak with a bankruptcy attorney to go over the entire financial situation you are in. If you file chapter 7 bankruptcy it will stop a foreclosure when the automatic stay goes into effect. This won't last as the lender will file a motion for a relief of stay and continue with the foreclosure as soon as the motion is passed.
A Chapter 7 bankruptcy might work for some individuals if they have a large amount of unsecured debt that is making it hard for the debtor to be able to pay the mortgage. Wiping out a large amount of unsecured debt many times will free up the extra money necessary so they can pay for and keep their secured property. In most situations when property is involved a Chapter 13 bankruptcy is probably the best option. Chapter 13 will allow a debtor to catch up on back payments and possibly negotiate with the lender to modify the loan during the three to five year payment plan. Filing Chapter 13 will also allow the debtor to get all other bills under control such as credit card debt. Depending on the payment plan that's arranged and how much the debtor makes, many times the unsecured debts at the end of the payment plan that are still unpaid will be wiped out.
Whatever you do, be proactive if you're being foreclosed on. Don't just assume that because you filed for a loan modification the foreclosure will stop. When you get a foreclosure notice it's best to immediately consult with a bankruptcy attorney and see what's available to stop the proceeding. Not doing anything can end up in disaster, damaging your credit and losing your home.
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