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Bankruptcy May Be Your Option

How HAMP works with bankruptcy law

One of the ways that people can get into financial trouble is when they find that their mortgage is more than they can cope with. If a homeowner with mortgage problems reaches the point where the situation becomes untenable but still wants to keep the home, then programs like the Home Affordable Modification Program are available to help.

But what if the mortgage is only part of the homeowner's financial difficulties? What if the overall financial state of affairs is so dire that bankruptcy must be considered as an option? Does bankruptcy preclude taking advantage of a program like HAMP? Fortunately, the answer to this question is, "No."

First of all, we should be clear on what HAMP does, and who qualifies for it. The purpose of HAMP is to make it easier to modify problem mortgages by incentivizing lenders to work with borrowers to change the terms of their mortgages. Not every homeowner qualifies; criteria for HAMP eligibility include (but are not limited to) having a first-lien loan, the payment of which consumes at least 31 percent of the homeowner's gross income and which has become unaffordable because of a financial hardship that can be proven.

Qualifying homeowners can use HAMP to change the duration, monthly payment amount and interest rate of their mortgage and to have part of their principal amount forgiven. Another benefit of HAMP is that it can be used in combination with a bankruptcy petition, either Chapter 7 or Chapter 13. It can also help to avoid home foreclosure, even for homes that are already in the process of being foreclosed upon. Even homeowners who have already completed the bankruptcy process and have received a discharge are still eligible for HAMP.

There are many considerations to take into account when deciding whether bankruptcy, whether in tandem with HAMP or not, is right for you. And qualifying for HAMP requires completion of documentation requirements and coordination with the mortgage lender and the bankruptcy trustee. Your bankruptcy attorney can assist you determining if you qualify for HAMP, and in meeting the documentary and other requirements if you do.

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