For years many homeowners have been filing bankruptcy simply to stop the foreclosure sale of their homes. These homeowners make the preliminary filings and then either quickly discharge the bankruptcy or let their cases be dismissed. These practices frustrate bankruptcy court judges and waste a valuable opportunity to legitimately solve the debtor’s problems.
The most frequent reason that loan modification applications are denied is “arrears”. In some cases it has been so long since the homeowner’s last mortgage payment that the late fees, penalties and past due payments (called arrears) can be tens of thousands of dollars or more. In order to qualify for a loan modification these arrears have to be “built in” to the proposed modification. These arrears can inflate the loan total so greatly that it is impossible to create a monthly payment that is “affordable” under government standards. So the borrower gets denied. Bankruptcy may solve this problem. In a Chapter 13 bankruptcy a debtor can repay the arrears over a five year period. The bank, therefore, doesn’t have to factor the arrears into the proposed modification; which makes it more likely that the proposed payment will be affordable. Now the borrower may qualify.
If you are trying to save your home its important to retain counsel that understands all local rules of bankruptcy and all federal guidelines with respect to loan modification. Simply filing bankruptcy to stop sale dates will only subject you and your attorney to sanctions and waste your opportunity at a permanent solution.