What Happens to my HAMP Modification if I File for Bankruptcy?
September 6, 2009
Many homeowners sought HAMP modifications because they thought it would help them avoid bankruptcy. But, mortgage servicers are not processing HAMP mortgage modifications nearly quickly enough to offer any real relief to homeowners. With servicers refusing to even acknowledge receipt of modification documents, what now?
Many homeowners applied for HAMP modifications four or five months ago and were current on their mortgages when they first applied. Had they received a timely response to their modification requests, many could have avoided bankruptcy.
But, homeowners are not receiving timely responses from their servicers. In the meantime, their debt situation becomes more and more dire as they struggle to remain current on their mortgages pending a response to their modification requests.
So, the question becomes:Â will filing for bankruptcy take these homeowners out of the running for a HAMP modification (assuming their servicer ever decides to process their HAMP application)?
Homeowner has applied for HAMP but not yet in trial period
If the homeowner has applied for HAMP but is not yet in a trial period, it is generally left up to the discretion of the servicer as to whether they will consider a homeowner eligible for a HAMP modification after filing bankruptcy.
If, however, your loan is owned or guaranteed by Fannie Mae or Freddie Mac, new rules may soon make it mandatory for your servicer to offer you a HAMP modification even if you declare bankruptcy. (This is assuming you otherwise qualify for a HAMP modification.) Note: these changes have been proposed, but have not yet taken effect.
In our experience, some servicers decline to offer HAMP modifications to homeowners who have filed for bankruptcy prior to entering the HAMP trial period.
But, homeowners in this situation should ask their servicer about its policy.
If you servicer will not offer you a modification if you file for bankruptcy, you can crunch the numbers to determine whether you would get more relief from a modification or a bankruptcy filing.
What if you are in your HAMP trial period and you need to file for bankruptcy?
If you have already entered a HAMP modification trial period and you file for bankruptcy, the final modification may need to be approved by the bankruptcy court.
The servicer is generally required by the HAMP servicer guidelines to work with your bankruptcy attorney to try to get the modification approved by the bankruptcy court, if necessary.
What if your HAMP modification is in place but you still need to file bankruptcy?
A homeowner’s filing bankruptcy after a HAMP modification might be considered a violation of the modification plan.
Homeowners who think they might need to file bankruptcy even after getting a modification should ask their servicer if a bankruptcy filing will void the modification.
Many of these are gray areas and servicer policies vary widely. Homeowners should always check with their specific servicer as to what its policy might be. But, it’s important to ask the questions.
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