November 17, 2012 /24-7PressRelease/ -- Indiana Attorney General sues mortgage aid companies
Recently, the Indiana Attorney General filed five lawsuits suing mortgage aid companies for deceptive practices. This is not solely a problem in Indiana. The Federal Trade Commission announced in October that it also had sued three companies. The FTC suits sought to shut down the companies.
The mortgage aid companies are accused of scamming financially distressed homeowners with claims that they could help the homeowners avoid foreclosure. In many cases, these companies ask for upfront fees that can reach thousands of dollars. The FTC, in 2010, passed a rule banning mortgage foreclosure rescue and loan modification companies from collecting fees until providing proof a lender was willing to work with the borrower. The federal lawsuits charge that the companies requested advance payment for mortgage relief services.
Unfortunately, these companies can make matters much worse for struggling homeowners. In contrast, a Chapter 13 bankruptcy is a way to stop creditor harassment, pay mortgage arrears and eliminate or reduce unsecured credit card debt.
In bankruptcy, an automatic stay prohibits collection efforts and freezes the foreclosure process on a home. In some cases, however, a homeowner may be too late to benefit from the protection of the automatic stay.
If the foreclosure process is nearing a sheriff sale, a homeowner may be too late in seeking bankruptcy relief. In a New York case, a couple filed for Chapter 13 relief two hours late. Their home was sold at a foreclosure sale before they received an automatic stay. Because they no longer owned the home when they filed for Chapter 13 bankruptcy protection, they were not allowed to keep their home or propose a plan to deal with the mortgage.
How Chapter 13 works
A Chapter 13 payment plan allows for repayment of mortgage arrears and other debts over a fixed period. When it comes to a mortgage on a principal residence, a plan may not be able to modify the rights of the bank, but will allow time to pay past due balances and reinstate regular installment payments.
If a home is underwater and subject to a second mortgage or home equity line of credit, Chapter 13 may allow the debt to be "stripped." The second mortgage or line of credit may be treated like unsecured credit card debt, because there is no longer home equity securing the debt.
If your home is going into foreclosure, you may need to file for bankruptcy sooner than planned to ensure your home is included in the bankruptcy estate. The decision to pursue a Chapter 13 rather than a Chapter 7 bankruptcy will vary on your individual circumstances. Consulting with an experienced Indiana bankruptcy attorney is the best way to determine which option best suits your needs.