How Bankruptcy Can Pick Up Where New Loan Modification Program Leaves Off

There's a new plan to help restructure the mortgages of underwater borrowers. The only catch? It won't work for everyone, say Chicago bankruptcy attorneys.

So far, more than 20 lenders have jumped on board the FHA-backed Short Refi program, which aims to help homeowners by getting lenders to write off 10 percent or more of their principal balance. Borrowers are considered eligible if they are regularly making mortgage payments and do not yet hold an FHA loan. Sounds good, right? Here's where it gets sticky. See, Fannie Mae and Freddie Mac loans don't qualify.

Already, that leaves many borrowers out of the loop. And because of this, big banks like Bank of America and Citibank have decided they don't believe the plan will work, and thus don't want to become involved (in other words, they're using Fannie and Freddie as an excuse to bail on helping homeowners).

On one hand, the program has the ability to significantly reduce mortgages for some lucky people. One of the participating lenders, 1st Alliance, reported slashing balances by an average of 33 percent. That means a $265,000 home loan could be cut to $170,000 - not too shabby.

One the other hand, what does that do for the millions of homeowners who have loans held by Freddie Mac or Fannie Mae - or who already have an FHA loan? Nothing - but there's still hope. If you're up to your knees in debt, your bills are most likely affecting your ability to pay your mortgage. Bankruptcy can stop the foreclosure process while you eliminate debt, so that money can go to your house payment rather than your creditors.

There's a reason bankruptcy filings are at record highs. Homeowners are learning that Chapter 13 can give them the second chance they need - both at getting current on their mortgage and at getting out of debt. Find out if bankruptcy can be your ticket to a fresh start when you sign up for a free personal debt analysis with one of our Chicago bankruptcy attorneys.

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