Many of my Michigan bankruptcy clients want to have their cake, and eat it too. Well, hey, whoe doesn’t? I sure do.
They want to get a mortgage modification, and file bankruptcy as well. Which is not a bad strategy, but can get complicated.
Some good news, though, as always, color me skeptical on how the government follows through on this one. However, those grotesque giants who did so much to ruin the housing market, Fannie Mae and Freddie Mac, bailed out by you and me, are now offering mortgage modifications.
These two alone have their fingers in over two thirds of the mortgages out there in the U.S.A.
a few months back when the FHFA announced that they would be making changes to the GSE’s loan modification programs that would allow borrowers with less than 20 percent equity… and who are over 90 days but less than 24 months delinquent on mortgages that are at least a year old… to reduce their monthly payments through interest rate reductions and terms extensions… without having to document their income.
(mortgage modification quote from the Mandelman matters website)
You are eligible for these, far as I can tell, whether you filed Chapter 7 or chapter 13 bankruptcy, or before, or are in any Chapter bankruptcy now.
A mortgage, by definition, is a lien on real estate. Such liens are not wiped our, or discharged, by filing bankruptcy. Your personal liability on a mortgage note is discharged in a Chapter 7 bankruptcy. For years, mortgage servicers jerked people in bankruptcy around (yeah, I know, they jerked everyone around) by saying they did not qualify for mortgage modification.
The HAMP rules were modified to specifically tell the bozos that people who were in, or had gone through, bankruptcy, were still eligible.
So, you do NOT have to make a choice between filing bankruptcy, and trying for a mortgage modification.
If you are in a Chapter 13 bankruptcy, you will have to get bankruptcy court approval, a court order, allowing you to change the term of the debt. That is the case in Detroit bankruptcy court, at least.
I believe the mortgage companies want, ergo, require, bankruptcy court orders approving any modification for people in Chapter 7, or Chapter 13, bankruptcy. That is what I see with my clients.