Loan Modifications Before, During and After Bankruptcy

Under Washington state bankruptcy law a debtor does not have to sign a Reaffirmation Agreement, an agreement made between a creditor and the debtor that waives discharge of a debt that would otherwise be discharged in a pending bankruptcy proceeding. It is a good thing because “reaffirmed” mortgage causes the debtor to remain personally liable for the mortgage debt after bankruptcy, and for any resulting deficiency judgment determined to be due after a foreclosure.

Even if the mortgage is not reaffirmed, it does not mean that the debtor’s lender will not be able to offer HAMP mortgage modification after receiving Chapter 7 discharge. The borrowers in an active Chapter 7 or Chapter 13 bankruptcy case are also eligible for HAMP consideration. Moreover, if the debtor is in a HAMP trial period plan and subsequently file for bankruptcy, the debtor may not be denied a HAMP modification due to bankruptcy.

In case if the mortgage modification agreement was entered into prior to Chapter 7 bankruptcy filing, the terms of the modification will survive the bankruptcy filing and discharge. Personal liability on the payment obligation gets discharged in subsequent bankruptcy, providing the mortgage debt in the bankruptcy is not reaffirmed. The mortgage lien survives the bankruptcy, however if the lender forecloses, the property will be sold at auction, and deficiency judgment will not be pursued after the sale.

If the modification agreement is entered into after your Chapter 7 discharge, personal liability on the payment obligation was discharged in prior bankruptcy, providing that the mortgage is not reaffirmed. If your mortgage modification is entered into while your bankruptcy case is pending, personal liability on the payment obligation will be discharged in bankruptcy, providing that mortgage debt was not reaffirmed. The trustee will administer payments to the lender towards the past-due mortgage payments.

A loan modification does not re-establish liability on the loan. While the terms of the loan might change, the loan is not being refinanced. Refinancing the property into a completely new loan would re-establish liability, but not a loan modification.

For more information about modifying your loan before, during or after filing a Chapter 7 or Chapter 13 and which one is right for you, contact one of our experienced bankruptcy attorneys here at Integrity Law Group by calling (206) 838-8118.