Will Chapter 7 filed during trial payments disturb DOJ Loan Mod??

[ksuecali]

We were moments away from filing Chapter 7 (to relieve$100K of dept) when we received a $199K forgiveness letter from BoA as part ofthe Dept. of Justice program. Now the game has changed.....Need information tostrategize my next move.

Details on our house story:

Owe $382K on first + $199K second-both BofA loans (home value fluctuates frommid-$300K to $500K
Stopped payments both 1st and 2nd on Jan. 2011
Applied for HAMP-later denied
Applied for DofJ Loan Mod
Approved for DofJ loan mod JUly 2012.
Trail payments roughly $500 per month HIGHER than before...not happy*
Made first payment Aug. 2012 (financial struggle to pay-considering if we wantto keep house?)

*Our DofJ payment is $3500 per month. This is $1050 more than we used to pay.It now includes insurance and taxes (we used to pay separately). So it is stillabout $450-$500 more a month that we paid before. I am confused how they cameup with this trail payment amount??

BACKSTORY ON INCOME: My husband works for the government (Fire Service) andtook a 10% pay cut 1 years ago. He has been force hired to work several shiftsof overtime during last spring (falsely raised our income?? If so we can get a letter from the City explaining temp increase and ask for them to consider our TRUE income) We also made moremoney last year before the cuts (do underwriters base income on last yearstaxes?) We also own a vacation home that we rent out as a side business (Maybethey included the income from this business and didn't consider the expenses?Since it is often a monthly loss-not income ) Basically our monthly trailpayment is 50%+ of our monthly net income. Our home was appraised at $340Krecently. We had recently decided to walk away and rent (an ocean view homewould be less than the trail payments on our $300K underwater place).

But we really wanted to know what is behind 'Door number 3' with the loan modification.So we have made 2 of the trail payments. The whole time we have wondered 'couldit be that the trail payment that is offered may be more than our final paymentwill be?' 'Could it be that they offer us a 15 year plan with 2% interest andwe could pay off the house sooner?' We have no idea, but decide to keep'rolling the dice'. Then the Fed Ex package arrived with the $199K forgiveness.

Problem: If we don't file Chapter 7 BEFORE the loan modification goes through,we will not qualify and will have to file Chapter 13 (we need the late paymentsto raise the pay off amount to qualify.....so we really want to file 7 NOW.Anyone know how I can clarify what will happen to Dof J loan modification if Ifile now? My attorney has no idea either and is trying to contact BofA bankruptcydept. for details.

Bottom line questions:
1) Will filing BK during DofJ loan modification change the plan in progress?
2) Is the trial period payment the same as the final payment?
3) Can the financials be re-considered if there has been a change since the initial application for DofJ?
4) How do the underwriters come up with such a high payment?

[Cat Damiano]

Hi ksuecali,


Welcome to the forum and thank you for joining.............

What type of modification program are your trial payments on the first lien for, a HAMP or an inhouse? Also, the modified payments are based on gross income, not net income, so what percentage of gross income are the payments on the first lien alone versus the gross income at? You would have to ask the attorney if the second lien being extinguished is going to change the bk filing as we they would be able to answer that question best.

[ksuecali]

Hi Cat!

Thanks for responding. I have been fighting this fight for 20+ months, and I am so happy to have someone to ask a few questions! It is also great to share our process with others going through this challenging adventure.

In response to your question: I know we have a Deptarment of Justice loan modification (and according to a verbal conversation) we may receive a forgiveness on all back payments ($50K) and we also just received a forgivemess on $199K of our second. But I have seen very little written details. I have tried to get infomation regarding the terms of the new loan and can not get any details. So I truly don't know what kind of loan modification we have been paying towards. I will ask my rep at BofA when we chat next? Any idea where or how I can find out?

Update: since my initial posting I have researched some details. (One of the reason I reached out on this forum is because my attorney doesn't know the answer either). I asked my rep at BofA and she gave me the number to the BofA Bankruptcy Dept. There I was told that a Chapter 7 filed during Loan Mod would not interupt the loan mod we have in process. (YIPEE!) Just for insurnace my attorney called the number too. He was told just the opposite. BK Dept. Rep told him that the loan mod process would be cancelled and we would have to start over (WTH?). So I called again and found another rep that explained that the rules change almost daily and that reps can not keep up with latest information. She said it was true that in the past it was a problem for loan mod applicants to file BK DURING loan mod process, but she recalls a recent notification and believes it would not be an issue, but wanted to make SURE. She offered to contact the "work up" Dept (where they review and finalize loan mods) to get the latest information. I am still waiting for a response.

We are concerned that if we file the Chapter 7 now and have to start over we will be fore closed on before we are approved for another trail payment plan, since we have not paid a payment (except for trail) since January 2011.

Also in regards to the trail payment, you are right that the $3500 monthly trail payment is likely 30% of our gross pay. But becuase we have roughly $4000 a month taken out in mandatory deductions (despite what people think government employees and fire fighters do pay HUGE amounts towards medical and retirements each month). So the $3500 trail payment is more than 50% of what we make each month, making things challenging. My big question: With a $380K morgage, where does the $3500 per month go? If $100 does to insurance and $500 towards taxes, that leave $2900 towards payment. According to the morgage calculators I have been playing with, this looks like they may offer us a 15 year loan at 3% to pay off the $380K. (following me?) Have you seen any loan mods with those types of offerers? It seems odd that they would offer us a loan mod with a $600 per month increase....but if they calculated that we can afford 31% of gross, then that would be my guess.....Your thoughts?

[Evan Bedard]

In response to your question: I know we have a Deptarment of Justice loan modification (and according to a verbal conversation) we may receive a forgiveness on all back payments ($50K) and we also just received a forgivemess on $199K of our second. But I have seen very little written details. I have tried to get infomation regarding the terms of the new loan and can not get any details. So I truly don't know what kind of loan modification we have been paying towards. I will ask my rep at BofA when we chat next? Any idea where or how I can find out?

Hello ksuecali,

You haven't received any paperwork in regards to the modification you have been making trial payments on?

[Cat Damiano]

Hi Cat!

Thanks for responding. I have been fighting this fight for 20+ months, and I am so happy to have someone to ask a few questions! It is also great to share our process with others going through this challenging adventure.

In response to your question: I know we have a Deptarment of Justice loan modification (and according to a verbal conversation) we may receive a forgiveness on all back payments ($50K) and we also just received a forgivemess on $199K of our second. But I have seen very little written details. I have tried to get infomation regarding the terms of the new loan and can not get any details. So I truly don't know what kind of loan modification we have been paying towards. I will ask my rep at BofA when we chat next? Any idea where or how I can find out?

Update: since my initial posting I have researched some details. (One of the reason I reached out on this forum is because my attorney doesn't know the answer either). I asked my rep at BofA and she gave me the number to the BofA Bankruptcy Dept. There I was told that a Chapter 7 filed during Loan Mod would not interupt the loan mod we have in process. (YIPEE!) Just for insurnace my attorney called the number too. He was told just the opposite. BK Dept. Rep told him that the loan mod process would be cancelled and we would have to start over (WTH?). So I called again and found another rep that explained that the rules change almost daily and that reps can not keep up with latest information. She said it was true that in the past it was a problem for loan mod applicants to file BK DURING loan mod process, but she recalls a recent notification and believes it would not be an issue, but wanted to make SURE. She offered to contact the "work up" Dept (where they review and finalize loan mods) to get the latest information. I am still waiting for a response.

We are concerned that if we file the Chapter 7 now and have to start over we will be fore closed on before we are approved for another trail payment plan, since we have not paid a payment (except for trail) since January 2011.

Also in regards to the trail payment, you are right that the $3500 monthly trail payment is likely 30% of our gross pay. But becuase we have roughly $4000 a month taken out in mandatory deductions (despite what people think government employees and fire fighters do pay HUGE amounts towards medical and retirements each month). So the $3500 trail payment is more than 50% of what we make each month, making things challenging. My big question: With a $380K morgage, where does the $3500 per month go? If $100 does to insurance and $500 towards taxes, that leave $2900 towards payment. According to the morgage calculators I have been playing with, this looks like they may offer us a 15 year loan at 3% to pay off the $380K. (following me?) Have you seen any loan mods with those types of offerers? It seems odd that they would offer us a loan mod with a $600 per month increase....but if they calculated that we can afford 31% of gross, then that would be my guess.....Your thoughts?

ksuecali,

Thank you for your post, I will do my best to answer any questions that you may have if I am able. Until you receive the permanent modification docs, it would be very difficult to calculate how they are arriving at that payment amount. The payment will go off of your gross income. How long have you been making the trial payments on the DOJ modification, I ask this because BofA had only made the announcement in May and began sending letters to those that qualify shortly after?

[ksuecali]

Hi Cat and Evan!

So happy that you are offering your knowledge!

I recevied the trial letter from BofA on July 3, 2012. It basically states that after careful review we were approved to enter a conditional Trial Period Plan and to accept this offer we just needed to make our first payment on Aug. 1, 2012 (we did make payment then as well as Sept. 1). I can not find out what type of plan I am on (it doesn't even say DOJ), or what the terms will be once completed. The big questions for us now is: If we file Chpt 7 at this point, will we be able to jump back into a loan mod Trail Payment Plan? Or will we be able to re-apply? Or will then forclose sooner?

At this point (the plan changes daily), we plan file Chpt 7 BK this week (to address the $100K of cc dept) before the loan mod is completed (since we need the $50K (19 months of unpaid past morgage payments) to qualify for Chpt 7 and if what the Cust. Service Manager at BofA says is true, then we will have the 19 months arrears ($50K) forgiven with the DOJ and we will not qualify for Chpt. 7. Does this all make sence?

I have called and asked the BK Dept. (85% of the calls are now consistantly the same response) that the Loan Mod will be interupted and we will likely have to start over......oh well! I did get one suggestion that I think may be helpful? One of the reps says the best chance I may have to revive the loan mod is to have my attorney send a letter to BK Dept. authorizing them to continue communicating with us regarding modifying my loan(s) (yes I have another property I am play the game with-more inforation on that house later).

Any information I can share, brings me peace. Any information I am offered makes me grateful!!!

To be total honest I have been playing this game with my head buried deep in a dark hole until I accidently stumbled across this site. Now I feel impowered and am motivated to understand more of what/where I am in this process. Thank you all so much for being the lighthouses we all need now.

[Cat Damiano]

If it does not say on the trial plan that it is the DOJ settlement or a HAMP trial then it is most likely an inhouse modification trial period. In which case the guidelines for these programs would not apply. You should receive the permanent modification docs shortly after making that third trial payment and the bk should NOT start the process over from there because you would be able to file a bk and still be eligible for a permanent modification, so that information is not accurate.

[ksuecali]

Hi Cat,

Thanks again for your thoughts. Perhaps with a few new twists you will have further valuable information or opions to share?

Progress today:

Called my loan mod rep (not the BK Dept.) and asked again for more information regarding TYPE of loan mod trial payments I am making (have made 2 of 3 payments). In the past I had just taken everything she told me from the initial conversation we had (in July 12). During that conversation she told me I had been approved for a DOJ loan mod and that I should be very happy because it included a principal reduction of all past due payments approx. $50K. (Now as I think back, she seemed very unsure of all the details-I wouldn't be surprised if it was one of the first calls she made regarding these types of loan mods?).

So TODAYS conversation was very different....she explained that I NEVER have a DOJ (WTH?) and that my loan mod is an in-house loan mod. (This may explain the higher payments....the new loan may include the past due payments of $50K??) All I could wonder was that perhaps I was very confused on which loan number we had been discussing (I have 4 Bof A loans)....although she NEVER had spoken with me about my HELOC before??...Or she was very confused when we initially spoke....Or she lied?) Recap: I did in fact get the $199K forgiveness on the HELOC in writting.

In any case, the question now is which option should I take:

Scenario #1 File Chapter 7 now and assume I will have to re-file for Loan Mod (which is what all bofa reps say will happen) and skip making the $3500 payment for Oct. (payment 3 of trial) My initial thoughts: This may not the end of the world, as our income is currently slighly lower, so this may result in a new lower loan mod? If they will allow us to re-file?

Scenario #2 File Chapter 7 now, then mail my $3500 payment (trial payment #3) on Oct. 1 and take a chance of them passing the loan mod through. Thoughts: I may lose the $3500 and be stuck with huge new monthly payments.

Any thoughts out there on what my chances of getting another 'in-house' loan mod if I don't make trial #3 and file BK now?

Now this is getting really interesting.....

[Cat Damiano]

Hi Cat,

Thanks again for your thoughts. Perhaps with a few new twists you will have further valuable information or opions to share?

Progress today:

Called my loan mod rep (not the BK Dept.) and asked again for more information regarding TYPE of loan mod trial payments I am making (have made 2 of 3 payments). In the past I had just taken everything she told me from the initial conversation we had (in July 12). During that conversation she told me I had been approved for a DOJ loan mod and that I should be very happy because it included a principal reduction of all past due payments approx. $50K. (Now as I think back, she seemed very unsure of all the details-I wouldn't be surprised if it was one of the first calls she made regarding these types of loan mods?).

So TODAYS conversation was very different....she explained that I NEVER have a DOJ (WTH?) and that my loan mod is an in-house loan mod. (This may explain the higher payments....the new loan may include the past due payments of $50K??) All I could wonder was that perhaps I was very confused on which loan number we had been discussing (I have 4 Bof A loans)....although she NEVER had spoken with me about my HELOC before??...Or she was very confused when we initially spoke....Or she lied?) Recap: I did in fact get the $199K forgiveness on the HELOC in writting.

In any case, the question now is which option should I take:

Scenario #1 File Chapter 7 now and assume I will have to re-file for Loan Mod (which is what all bofa reps say will happen) and skip making the $3500 payment for Oct. (payment 3 of trial) My initial thoughts: This may not the end of the world, as our income is currently slighly lower, so this may result in a new lower loan mod? If they will allow us to re-file?

Scenario #2 File Chapter 7 now, then mail my $3500 payment (trial payment #3) on Oct. 1 and take a chance of them passing the loan mod through. Thoughts: I may lose the $3500 and be stuck with huge new monthly payments.

Any thoughts out there on what my chances of getting another 'in-house' loan mod if I don't make trial #3 and file BK now?

Now this is getting really interesting.....

That isn't a determination that I would be able to make as the trial payments are inhouse trial payments and one would only be receiving an inhouse modification if they were denied the HAMP. So if you default on an inhouse trial, they may not offer you another modification program.

[ksuecali]

That isn't a determination that I would be able to make as the trial payments are inhouse trial payments and one would only be receiving an inhouse modification if they were denied the HAMP. So if you default on an inhouse trial, they may not offer you another modification program.

Thanks again Cat for your time.

Can I ask what you think will happen if we file Chpt 7 just days before we send in our final trial on the In-House LM (on Oct. 1)? My current strategy is to have the attorney fax a letter (within days of filing) to the BK Dept and to my loan rep authorizing BofA to continue communication with me regarding Loan Mods. (BK Dept. rep says this will help the process to move forward). We have an apt. with our BK attn this week and will finalze a plan, but this is the plan we are leaning towards currently. My attn seems apprehensive about this and I think he is worried that this will be the last LM they will offer us?

[Jeffrey L. Shurtliff]

Not a lawyer here but, when you file bankruptcy your file just sits there and nothing is done, as an automatic stay is in force against the creditors. When you file a Chapter 7, your whole estate is before the court just like you died. Your estate during the bankruptcy is the property of the Bankruptcy Court. If you are paying payments toward a trial pay plan DOJ, this complicates things as this type of modification involves Law enforement. The Attorney Generals of the States are the Law enforecment authority. You will receive a notice of a 341 hearing before the Trustee of the Court. (Creditor meeting) No creditors usually come to the meeting. If you are in an inhouse modification and actively making trial payments, then depending on the institution you are with they will accept your payments or send them back. However the bank is not allowed to talk to you while you are in Chapter 7 until the Court lifts the Automatic Stay letting the bank contact you for a modification. This is specifically stated in the Order to lift the stay. So what I am saying here is nothing will be done until that stay is lifted. Technically you should be paying nothing during the bankruptcy.

[Cat Damiano]

Thanks again Cat for your time.

Can I ask what you think will happen if we file Chpt 7 just days before we send in our final trial on the In-House LM (on Oct. 1)? My current strategy is to have the attorney fax a letter (within days of filing) to the BK Dept and to my loan rep authorizing BofA to continue communication with me regarding Loan Mods. (BK Dept. rep says this will help the process to move forward). We have an apt. with our BK attn this week and will finalze a plan, but this is the plan we are leaning towards currently. My attn seems apprehensive about this and I think he is worried that this will be the last LM they will offer us?

The attorney would know that best, but I can see why he would be apprehensive, as I stated previously with a default on the current modification, they may not offer you another one.

[Jeffrey L. Shurtliff]

I agree and would hold off filing, until you get the permanent modification.

[ksuecali]

Wanted to update in case our situation is of any value to anyone? We have decided to file Chapter 7 ASAP. The relief (from the $100K debt removal) is worth another 'roll of the dice'. We know we may not get another chance at a loan mod (on our $90K underwater home-with a failing septic system-in town that suffers from increasing gang activity). But we will lose the chance to file Chapter 7 if we wait until after the loan mod is completed. We weighed all pro's and con's and decided we were never positive we wanted to stay, as we can rent and start over (we have been considering a 'walk away' plan for over a year anyway). This new plan will leave us with no debt.

However, we wouldn't mind locking in a another trail mod and delaying the move due to kids school timeline, so I will aggressively pursue the loan mod as soon as the BK stay is lifted. (I am also considering encourage my attorney to write a letter to the BK Dept. with BofA and stating that they are allowed to continue communication with me regarding the loan mod process. I have been told by the BK Dept. that this may keep this loan mod 'alive'. My account rep ways the Loan Mod Trial will die as soon as we file and I will have to start over with the BK Dept). Honestly, since I am taking so many risks, I am wondering why hurry the new application process, when technically I think I can wait the 4 months until the stay is lifted, at which time I can attempt to re-apply. (thoughts of 4 months x $ mortgage amount in bank is good).

I feel like a rookie and honestly I have been playing this 'game' with my head shoved firmly in a hole in the dirt until now. Unfortunaly I don't think my Bk Attorney has a clue what is happening in the land of Bankruptcy effects on BofA Loan Modifications since it seems to change daily, and vary from state to state, etc.

So here I go (The Rookie)....about to jump off the high dive....journaling for those to come behind me!

[Cat Damiano]

Wanted to update in case our situation is of any value to anyone? We have decided to file Chapter 7 ASAP. The relief (from the $100K debt removal) is worth another 'roll of the dice'. We know we may not get another chance at a loan mod (on our $90K underwater home-with a failing septic system-in town that suffers from increasing gang activity). But we will lose the chance to file Chapter 7 if we wait until after the loan mod is completed. We weighed all pro's and con's and decided we were never positive we wanted to stay, as we can rent and start over (we have been considering a 'walk away' plan for over a year anyway). This new plan will leave us with no debt.

However, we wouldn't mind locking in a another trail mod and delaying the move due to kids school timeline, so I will aggressively pursue the loan mod as soon as the BK stay is lifted. (I am also considering encourage my attorney to write a letter to the BK Dept. with BofA and stating that they are allowed to continue communication with me regarding the loan mod process. I have been told by the BK Dept. that this may keep this loan mod 'alive'. My account rep ways the Loan Mod Trial will die as soon as we file and I will have to start over with the BK Dept). Honestly, since I am taking so many risks, I am wondering why hurry the new application process, when technically I think I can wait the 4 months until the stay is lifted, at which time I can attempt to re-apply. (thoughts of 4 months x $ mortgage amount in bank is good).

I feel like a rookie and honestly I have been playing this 'game' with my head shoved firmly in a hole in the dirt until now. Unfortunaly I don't think my Bk Attorney has a clue what is happening in the land of Bankruptcy effects on BofA Loan Modifications since it seems to change daily, and vary from state to state, etc.

So here I go (The Rookie)....about to jump off the high dive....journaling for those to come behind me!

You are making the decision the is best for you and only you can make that decision. Good Luck and please do keep us posted on how it works out.