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My husband just died in June and my household income has shrunk

Customer Question

My husband just died in June and my household income has shrunk by well over half, thus I am in the process of filling out a request for a modification to my mortgage payments. I also have been unable to make payments on my credit cards and am thus thinking of filing bankruptcy. I already have an Obama modified loan (HAMP) that my husband and I received last year. The government loan program has been updated this year to allow equity write-downs to people who already have a HAMP loan. The guidelines for the program (which I have read online) say GMAC will need to pull my FICO score. although they are not supposed to consider debt in their evaluation. (This I don't understand.) They will thus see that I have a lot of debt I can't pay and may consider that disqualifying. In order to establish that my monthly income is enough to make the payments on a modified loan, I think I should not add them to my monthly expenses, as I cannot pay them, and, in fact, am also probably going to need to file bankruptcy very soon. Especially if I do not get a loan modification.

Should I explain this on my application for a modification? I am afraid that if they discover I am going to file bankruptcy, they will think I might ask for a discharge of my mortgage debt (is that possible?). I do not want to suffer a foreclosure or lose my house and will continue to pay my mortgage if GMAC comes up with a workable modification according to my income and expenses. And should I submit the application before I file for bankruptcy, or should I wait until after I file for bankruptcy? The HAMP program says that people who already are in the process of bankruptcy must be offered the opportunity to be considered for a loan modification. But there are some monetaty benefits for paying your HAMP loan on time each month for five years. I do not wish to lose these benefits, if possible.

Meanwhile, I have been keeping up on the forecosure crisis and some people with loans that are registered with the MERS corporation are receiving an annulment of their loan or their servicer loses the right to initiate a foreclosure. As you may have read, GMAC and other large servicers now are in very hot water over the fact that MERS cannot produce the original note for some loans, and because of fraud and/or forgery by some of their employees during foreclosure or bankruptcy proceedings. I checked MERS' database to see if they have my loan, and they do, but they don't give any more information about who owns it, etc.

Should I file for bankruptcy before applying for the modification. or after I apply? The problem is I cannot afford the mortage payment by December 15, unless I raid a small IRA I have. I really don't want to use that money because I it's all I have for an emergency. I am wondering if maybe I should take a risk and file bankruptcy to see if MERS can come up with my paperwok in a bankruptcy. Or maybe GMAC would have to consider my application even if I haven't filed bankruptcy yet, since they would have to consider it then. I don't want to risk foreclosure -- some people are being foreclosed on now while they are still waiting approval on a modification.

And which chapter should I file for to save my home? I qualify for a Chapter 7, but I don't want to lose my house. If I file Chapter 13, I won't be able to qualify to strip my second mortgage because there would be some equity left after paying off the the first lien. So far, I have no arrears or penalties yet on the mortgage, so there would be no need to add a payment plan for the mortage arrears to a Chapter 13 if I file now. Also, my monthly income may not be enough to make payments on most of the bills I have after paying my mortgage and utilities, etc., in a Chapter 13. All my monthly income is retirement income. I am in a quandry over whether I should dip into a small IRA to pay the mortgage on December 15, to keep my mortgage current until my application for a loan mod might be approved. They say that they have to respond to an application prelimarily in 10 days. Shoud I send my application in now -- it's ready to go. I just need to know it is the smart thing to do.

The questions:
1. When should I file for bankruptcy, before or after applying for a modification?
2. If I file before, should I mention on my application that I have no credit card expenses because I am not paying my credit cards and am considering either a settlement of my credit card bills if my mortgage is modified -- or a bankruptcy to discharge them?
3. Which chapter bankruptcy should I file if I carry through on that?

Thank you.
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  WALLSTREETESQ replied 3 years ago.
Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati on.

can you pay the current mortgage if necessary?

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