As the recession continues more people who have been able to hold off a bankruptcy are finding themselves with no other option but to file.  Just this last March 149,268 bankruptcies were filed in the United States.  According the American Bankruptcy Institute the filings represented a 34 percent increase from February.

Similarly, foreclosure rates have increased during the first quarter of this year. Realty Trac recently reported that more than 900,000 homes of 1 out of every 138 homes in the country has received a foreclosure related notice.  In Arizona, the Associated Press has reported that 1 in every 49 homes has received a foreclosure related notice during the quarter.

These trends are often times because people do not know that there are laws and programs available that can help them keep their homes or even allow them to remove second and third mortgage payments.  Bankruptcy and the Federal Government’s modification programs can work hand in hand to make life manageable again.

Arizona Bankruptcy Courts are part of the 9th Circuit Federal Courts.  Some individuals within the 9th Circuit recently found how bankruptcy and a loan modification can go hand in hand.  Their story might sound familiar to those attempting a modification on their own.  The individuals had initiated loan modification negotiations with Wells Fargo months before they eventually filed for bankruptcy.  Bankruptcy laws do not allow a bank to foreclose or sell someone’s home while they are in bankruptcy without first getting the Court’s permission.

During the modification negotiations the lender directed them to stop making their payments.  When they did stop the Bank had an attorney try and get the Court’s permission to foreclose because they had failed to make payments.  Outside of the bankruptcy they may have been able to foreclose but now they first had to get the Court’s permission.  The Court set a hearing where both sides were heard and the Court decided not to allow the foreclosure to happen but wanted the Bank to follow up with the Loan Modification and let the Court know what was happening.  The hearing was set 2 months later.  The bank didn’t have answers then either.  The judge reset the hearing again for 6 weeks later , then finally for 6 months later.  The Court stated “Nearly one year after it began the process Wells Fargo was still having difficulty determining whether it had a completed loan modification application upon which it could act.”  In re, 20 CBN 594 (Bankr. E.D. Cal. 2010)  During this time the individuals stayed in their home free from the worry that it would be foreclosed upon at anytime because of the bankruptcy laws.  Again, they may have lost the home had they not been in a bankruptcy which did not allow the bank to foreclose.

Many banks are doing their best to assist those who qualify for a loan modification.  But many banks are large and it is difficult for them to make changes that work with new laws or, in this case modification programs.  Loan Modification are not new but the extent to which they are now being utilized is unprecedented.  Federal Programs provide specific requirements that may allow you to keep your home and reduce payments to something more manageable.  If for some reason you don’t qualify now, a bankruptcy may be of help and may stop foreclosures while working with a bank.

For many people, bankruptcy is not the best option, for others modifications may not be the best option either but for some one or both might help them get on top of their finances and allow them to stay in their home.  What is most important it that people know their options and know how current laws and programs can be a tool they use to reign in finances during this difficult time.

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