Homeowners have the opportunity to combine loan modifications under the Obama Administration’s HAMP (Home Affordable Modification Program) with Chapter 13 plans that can eliminate or greatly reduce most other debts. This strategy was made much more feasible by recent changes in the mortgage modification program directives that prohibit mortgage companies from discriminating against homeowners who are in bankruptcy cases.
It is sometimes possible to obtain a loan modification before filing a bankruptcy case and then file the bankruptcy, under Chapter 7 or Chapter 13, to deal with other debts. But homeowners can also submit a loan modification request after a Chapter 13 bankruptcy case has been filed, and incorporate the proposed modification into a Chapter 13 plan to be approved by the court once the mortgage company agrees to modification.
A substantial portion of first mortgages are eligible for HAMP relief either as Fannie Mae or Freddie Mac related mortgages (GSE Loans) or as the mortgage servicer has agreed to participate in HAMP (non-GSE Loans).
The filing of the Chapter 13 petition stops any pending foreclosure sale. It is not unusual for non HAMP lenders or other lenders who offer internal modification or workout programs to process those while proceeding with foreclosure at the same time. Homeowners should know that they can continue to seek mortgage modification and file a Chapter 13 to stop a foreclosure. This removes the pressure of the impending foreclosure from the modification process
I often get calls from homeowners who want to file their Chapter 13 petition the next day to stop the foreclosure. It usually can not be done that quickly as there are documents to gather, forms to complete, credit counseling requirements, and fees to pay. Homeowners need to allow adequate time to prepare for a Chapter 13 bankruptcy filing, even if it turns out that it is not necessary.