Chapter 13 Bankruptcy and Loan Modifications of a Mortgage

“Can you file Chapter 13 bankruptcy and still obtain a loan modification of your mortgage?”

I’ve been fielding this question quite a bit lately. Just the other day, I was speaking with a client in my Dalton office about this topic.

The answer is yes. You can obtain a loan modification of your mortgage while you are in an active Chapter 13 bankruptcy. However, you must obtain court permission to complete the process.

While you are in an active Chapter 13 bankruptcy, you cannot incur new debt without permission from the Bankruptcy Court.  Loan modifications of a mortgage must also be approved by the Bankruptcy Court.

During this past year, we have received court approval of loan modifications in many cases without any problem. In one case, the bank took all of the past due arrears and put them to the end of the mortgage. In addition, they lowered the interest rate which in turn lowered the monthly payment.

In a rare situation, a bank may forgive a portion of the mortgage debt. Under the Mortgage Debt Relief Forgiveness Act of 2007, the amount of the mortgage that is forgiven by the bank cannot be taxed (click here to a related article on the Federal Trade Commission website).

About a month ago, I met with a client in my Rome GA office who got strung along by his mortgage company.  In this case, the client waited until just a few days before the foreclosure to file Chapter 13 to protect his house.  Fortunately, we were able to save it.  Waiting until the last minute is a gamble that I don’t recommend.

Any person who applies for a loan modification must understand that a mortgage company has no obligation to modify the loan.  They can deny the modification at any point (like the day before foreclosure!).

Any person who is facing foreclosure should investigate the option of Chapter 13 at least a few weeks before the foreclosure date.  If you wait until the last second, you run the risk that no bankruptcy attorney will have time to file your case.  Don’t take chances.  Save your house ahead of the foreclosure deadline.

Other Posts:

1.  Can I Eliminate My Second Mortgage in Chapter 13 Bankruptcy?

2.  Should I Quit Making Payments on my house so that I can get a loan modification?

3.  What is Chapter 13 bankruptcy?

4.  What is Chapter 7 bankruptcy?

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