Asian Journal- The Filipino-American Community Newspaper

IF YOU are in debt and need to file bankruptcy, the fact that you are also trying to do a loan modification at the same time may have stopped you from getting a fresh financial start that you need so badly. Perhaps you’ve been worried that filing a bankruptcy may cause your request for a loan modification to be denied. On June 1, 2010, however, new eligibility and underwriting policies for the Home Affordability Modification Program (HAMP) went into effect. In this article, I will briefly go over some of the specific changes that extend benefits to homeowners who have filed bankruptcy.

The fact that the borrower is in an active Chapter 7 or Chapter 13 bankruptcy case will no longer be the sole reason for denial under HAMP if the borrower or the borrower’s attorney submits a timely request to the servicer or lender. While servicers are not required to actively solicit the borrower for HAMP, they must comply with the borrower’s request for consideration once it is made. The borrower has until 7 days prior to a scheduled trustee sale date to submit such a request. Once the lender receives the request, the servicer must suspend the trustee sale as necessary to evaluate the borrower’s eligibility for HAMP.

Chapter 13: In the past, filing a Chapter 13 required the debtor to commence making the ORIGINAL mortgage payment even though the debtor has been approved to make payments of a lesser amount in a trial period under HAMP. This is no longer the case. Now, the borrower can simply pay the amount required under the approved trial payment period. The servicer is required to work with the borrower or borrower’s counsel to obtain any required court or trustee approvals and to extend the trial period up to an additional 2 months in order to allow sufficient time for the lender to receive the borrower’s trial period payments remitted to the Chapter 13 trustee.

Chapter 7: If the borrower has filed for Chapter 7, the fact that the borrower has not reaffirmed the mortgage debt is no longer a reason for denial under HAMP. In bankruptcy, a reaffirmation is a new contract between the creditor and the debtor which reinstates the debtor’s personal liability on the debt otherwise discharged by the bankruptcy case. In the past, most lenders refused to negotiate a loan modification unless the debtor signed such an agreement. Unfortunately, a lot of uninformed homeowners, unaware of the possible legal ramifications of a reaffirmed debt in bankruptcy, were practically forced to sign in order to get their lender’s cooperation.

In evaluating a homeowner’s eligibility for any type of loan modification, one of the factors considered by the lender is the homeowner’s debt to income ratio. If the amount of unsecured debt such as credit cards, personal loans, etc. is high, this is not in the applicant’s favor and could be reason for denying the loan modification application. Unfortunately, from what I have seen, most people who are in trouble with their mortgage are also overextended and behind on all other debts. Sooner or later, they need to file bankruptcy in order to wipe out or consolidate their debts. With the changes made under HAMP, it appears that they no longer have to wait to file bankruptcy until their loan modification is completed.

Please note that the changes discussed here are those under HAMP. Most lenders have their own loan modification program when the borrower is not eligible under HAMP. It is expected, however, that due to the new government policies now implemented, lenders will follow the same. Keep in mind, however, that laws are complex and if your property is already in foreclosure, time is critical and it is important that you consult with an experienced and knowledgeable attorney right away in order to protect your legal rights. For a free office consultation, please call Toll-Free 1-866-477-7772. We have offices in Glendale, Cerritos, West Covina and Valencia.

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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 4,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1-866-477-7772.