Determine under which chapter to file
Presuming the client is acting in good faith, the attorney must determine under which chapter to file in order to achieve the client’s goal of saving the home. If the client got into trouble with bills but now has the wherewithal to pay both the regular mortgage payment and a plan payment to the trustee, a Chapter 13 reorganization may be an option. However, if it is not feasible for the client to put together such a plan and household income is below the median, a Chapter 7 liquidation may clear out sufficient unsecured debts for the lender to rethink a loan modification request. If the latter tack is chosen, it is extremely important to be in close contact with the mortgagee and begin the application process immediately. The lender will require a consent form filled out by the client, giving the attorney the authority to speak directly with the company about the loan.
If a Chapter 7 filing is necessary, the client should be on notice that the lender has the option of filing to lift the automatic stay at any point. In fact, this may happen even if there is a pending application for a loan modification. But a debtor should not allow this dissuade him or her from applying. And it does not mean that the lender has decided not to offer a loan modification package. It just means that the mortgagee is pursuing judgment in order the minimize the time necessary to get the property sold should the debtor decide to surrender the house, should the household income dry up and make a loan modification unfeasible, or should the debtor get a package but fail to make required payments on time during the probationary period.
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