Bankruptcy Mortgage Modifications

Mortgage loan or bridging application with house

Understanding reaffirmation agreements is necessary for any investigation of this subject. A debtor is not required to execute a Reaffirmation Agreement for a mortgage on real estate under New York bankruptcy law. This is advantageous, as it keeps you personally responsible for the mortgage obligation even after filing for bankruptcy and for any deficiency judgment that results from the foreclosure of the “reaffirmed” mortgage. Ulster County, NY bankruptcy attorney can help!

Modifications While A Bankruptcy Case Is Active

The HAMP program is open to borrowers with active Chapter 7 or Chapter 13 bankruptcy cases. Additionally, you may not be rejected a HAMP modification because you filed for bankruptcy after enrolling in a HAMP trial period plan.

The Southern District of New York approved a Loss Mitigation Program in 2009, where the modification process is given a timeframe and “monitored” by the Bankruptcy Judge through periodic status conferences. Debtors can participate in this procedure or seek a modification outside of bankruptcy.

What impact does bankruptcy have on your obligation under a modified mortgage?

If your mortgage modification contract was signed before you filed for Chapter 7 bankruptcy:

  • The amended mortgage’s terms remain in effect after filing for bankruptcy and being discharged.
  • If you do not reaffirm the mortgage debt during the bankruptcy, your duty for the payment obligation is discharged. Although the mortgage lien endures bankruptcy, if the lender must finally foreclose, he must dispose of the property at auction; he cannot go after you for a deficiency judgment.

If you engage in a modification agreement after receiving a Chapter 7 discharge:

  • If you did not reaffirm the mortgage debt during your bankruptcy, your personal accountability for the payment obligation was discharged. As reaffirmation can only occur in Bankruptcy Court (1) while your bankruptcy case is pending and (2) after full compliance with the stringent conditions of Code 524, the post-bankruptcy adjustment does not reaffirm the obligation. However, one cannot go after you for a deficiency judgment after the auction sale because the mortgage lien sustains the bankruptcy release. The lender has redress against the assets. 

If you modify your mortgage while your bankruptcy case is still active:

  • If you have not reaffirmed the mortgage debt in your bankruptcy, your personal liability on the payment will be dismissed. The debt is not reaffirmed as a result of the amendment since the severe requirements of Code 524 must be fully met before reaffirmation may take place. However, the lender will only have recourse that cannot be used against the asset. Go after you for an auction sale deficit sentence. The mortgage lien will survive the final bankruptcy discharge.