Almost everyday we hear a new report on loan modification failures and housing foreclosures.  Despite some signs of the real estate market stabilizing, there are still hundreds of thousands of people losing or on the verge of losing their homes.  Many of them try loan modifications for months or even years without reasonable success.  Some then look at bankruptcy as their last resort.  However, many misconceptions exist about bankruptcy and these are just some of the most major:

First, second mortgages cannot be eliminated in a Chapter 7 bankruptcy if you are seeking to keep your home.  Only in a Chapter 13 can you strip the second mortgage so long as no equity protects any of the second and you make all your payments and obtain discharge.

Second, only a Chapter 13 has provisions, which allow you to catch up and keep your home.  A Chapter 7 shall only permit you to keep your home if there is not too much equity and you keep current on the home. 

Third, while the Obama Administration proposed modifications to bankruptcy allowing the Bankruptcy court to be able to alter the terms of home loans, Congress declined to pass it in April of last year. 

Fourth, you will not lose everything in a bankruptcy.  The law has exemptions which protects property up to a certain amount.  For instance, under certain situations, there exists a wild card exemption to be used on almost anything, which is valued at over $22,000.  In other scenarios, we are able to protect equity in the home of $75,000.

Lastly, bankruptcy does not ruin your credit forever. It stays on your credit for ten years with the biggest impact being the first two to four years.  Thus, unless you can be one of rare few to obtain a loan modification, your only option to catch up on a home and be able to keep it is finding the cash or doing a Chapter 13.  Do not make the decision lightly and consider all the factors as bankruptcy is not perfect but it can help some people keep their home.

Dan Kodam is with Kodam & Associates located at 41880 Kalmia Street, #130, Murrieta.

(951) 445-4905 or www.KODAMLAW.COM.