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  1. #1
    Join Date
    Nov 2011
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    1

    Default Chapter 7 Discharge and a Loan Modification

    My question involves bankruptcy in the state of: UT

    I filed a Chapter 7 bankruptcy (BK), which has been discharged (includes 1st & 2nd mortgage). I have subsequently negotiated a loan modification (MOD) with Chase bank on their loan mod program, NOT the HAMP program. These are my questions as they relate to this matter.


    1. If I make payments during the loan MOD trial period, am I reaffirming the mortgage debt?

    2. If I make payments AFTER the permanent loan modification, am I reaffirming the mortgage debt?

    3. Can the 2nd mortgage lender foreclose even though it was included in the BK?

    3a. If the answer to question #3 is "yes," is there a statute of limitations? If so, how long is it?

    3b. If the answer to question #3 is "yes," can the 2nd mortgage lender prevent me from selling the house and/or seize any proceeds, if I sell the house for a profit?

    4. If I decide to walk and not accept either the trial payments or the permanent loan mod how long will it take to foreclose?
    (*note: The foreclosure process was not started and no NOD was ever issued. I'm looking for more of an approximate timeline, as I know this is somewhat of a moving target depending on several variables.)

    I have successfully re-established good credit since my BK. I don't want to have a fresh foreclosure on my credit, if for example, I make the trial payments, then the lender changes to deal or gives terms on the loan mod that are not acceptable to me. If I have reaffirmed the debt, now in addition to a Chapter 7 showing on credit, I'll have a foreclosure showing and I'll have to start all over again on my credit. I hope that makes sense. Thanks in advance!

  2. #2
    Join Date
    Sep 2010
    Posts
    19,901

    Default Re: Chapter 7 Discharge and a Loan Modification

    The loan modification agreement itself reaffirms the loan.
    Is the second part of the modification agreement?
    Loan modification or not, the lenders with security interest in the property can always foreclose if you are in default. The bankruptcy doesn't change that, it just takes away their recourse against you other than foreclosure. Foreclosure is only stayed while the bankruptcy is in progress (or until they get the stay lifted).

    As for the timeline, that's entirely up to the lenders. Some are finding it's not particularly in their interest to foreclose on everything at the first opportunity.
    If the loan is discharged and reaffirmed, I don't believe a foreclosure will hurt your current credit.

  3. #3
    Join Date
    Sep 2010
    Posts
    478

    Default Re: Chapter 7 Discharge and a Loan Modification

    Quote Quoting flyingron
    View Post
    The loan modification agreement itself reaffirms the loan.
    With all due respect, I need to correct this statement.

    When loan mods first came out, I too considered it possible that such would be an end run around the discharge of the debt in that the lender would argue that there is new consideration and thus a new debt. But, as time passed it became evident that a loan mod IS NOT a new debt. Where there has not been a reaffirmation agreement approved by the Court, it is simply a modification of the lien rights of the lender. Nor is it a backdoor into a reaffirmation of the discharged debt.

    If the homeowner refinances (hearing a lot about this in the news this week), thus creating a new obligation dated post petition, then all bets are off. But modifying a pre-existing loan without the formal requirements of 11 USC 524(c) will not create personal liability on the loan. However, as you pointed out, if the creditor is not paid it will take back its property.

    Des.

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