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Loan Modification & Chapter 7 Bankruptcy

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Aug 14, 2009 3:55 pm US/Pacific

Loan Modification & Chapter 7 Bankruptcy

(CBS13)

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Question: How does filing a chapter 7 bankruptcy at the same time as working on a loan modification - on a property that is not an asset because you owe more on the loan than the house is worth - impact your chances of getting the loan modification?

On the one hand, prior to chapter 7, our DTI would be extremely high, which has previously hurt our chances of modifying our home mortgage (pre-Obama plan). Post chapter 7, DTI wouldn't be concern, but we're not sure how it might impact a modification.

We've been advised to do a loan modification first and then chapter 7. We've also been advised by our mortgage company that they are implementing the Obama plan next month. So we're not sure whether to wait on the chapter 7 or not.

What's your advice?

-Anonymous

Answer: I think it is imperative you discuss your situation with a bankruptcy attorney before moving forward with the mortgage modification. You mention being advised below, I would only take direction from a bankruptcy attorney who has no doubt been through this exact same situation countless times in the last couple of years.
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David Schauer ,CFA, MSFA, CFP®
Financial Advisor
Hanson McClain Advisors