Hoglund Law Blog

A new set of rules regarding the impact of a bankruptcy on a mortgage modification has taken effect as of June 1. Under these rules, a bankruptcy will not disrupt a HAMP modification.

Before this rule change, the filing of a bankruptcy would often disrupt the modification process. A modification typically will take several months to get set up. After it is set up, there is often a trial period usually lasting about three months. After the trial period the modification would be made permanent.

It used to be the case that if a bankruptcy was filed before the modification was made permanent, that the bankruptcy would halt the modification and the process would have to be started again. A new rule prevents the disruption of this process by a bankruptcy filing. Now a person can file a bankruptcy without having the modification halted.

In addition these new rules make it so that a mortgage company can not deny a HAMP modification because of a debtor did not sign a reaffirmation agreement after a bankruptcy filing. (A reaffirmation agreement essentially pulls a loan out of a bankruptcy. If an individual signs a reaffirmation agreement, they fully obligate themselves on the debt again. This is not always in the best interest of the debtor and mortgage companies often do not offer reaffirmation agreements if a person is behind on his/her mortgage. In addition, some mortgage companies simply do not offer the agreements.) It used to be the case that if an individual filed a bankruptcy and did not reaffirm the mortgage, the mortgage company would refuse to work with the person on a modification. Mortgage companies are no longer allowed to use the bankruptcy and the subsequent failure to reaffirm the mortgage as a basis deny a person a modification. In other words, a person may still receive a HAMP modification following a bankruptcy.

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