The Law Dictionary

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Can You Apply for a Home Modification After Bankruptcy?

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The bankruptcy process is inherently disruptive. Many homeowners lose their homes to foreclosure after their debts have been discharged. Since many personal bankruptcies are caused by sky-high mortgage payments on devalued pieces of property, homeowners often have no choice but to forfeit their real estate holdings during the bankruptcy process.

Ironically, many banks are wary of taking possession of foreclosed homes. Since the typical foreclosure is worth less than the value of its underlying mortgage, it represents a major liability for its owner. Likewise, most banks lack the resources to sell foreclosed properties on the retail market. The resultant foreclosure auctions often magnify banks' losses while benefiting intrepid real estate speculators.

To avoid this burden, many banks are eager to permit homeowners to "reaffirm" their mortgages during the bankruptcy process. When a bankruptcy judge grants a homeowner's request for reaffirmation, the bank loses its immediate claim on the property and must continue to accept monthly mortgage payments. Provided that they remain current on their payments, the homeowner retains equity in their home and can continue living in it

Unfortunately, many homeowners run into financial difficulty after choosing to reaffirm their mortgage in bankruptcy. In recent years, questionable reaffirmations have led to a spate of refinancing applications from homeowners who remain enmeshed in the bankruptcy process.

To make matters worse, banks are often less likely to agree to modify recently-reaffirmed mortgages. According to guidelines put forth by the Home Affordable Modification Program, borrowers who reaffirm their mortgages during the Chapter 7 bankruptcy process aren't eligible for HAMP-assisted modification. In practice, this might disqualify such borrowers altogether.

If you wish to apply for a home modification after a Chapter 7 bankruptcy filing, resist the urge to reaffirm your mortgage. Instead, resolve to continue paying your mortgage by any legal means necessary. You'll need to devote a significant amount of your take-home pay to the cause. You may also need to use your state's property exemption laws to retain cash reserves in case your regular income is insufficient. If you remain current on your mortgage payments, it's unlikely that your bankruptcy judge or mortgage lender will move to seize your home.

Once your other debts have been discharged, talk to your mortgage lender or contact HAMP to discuss your modification options. Although you may be able to reaffirm your mortgage during bankruptcy, you'll probably get a better rate after the ordeal is over.


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