Can You Get A HAMP Mortgage Modification - Even If You File Bankruptcy?

Since the latest HAMP Supplemental Directive (SD) in 2010, you can get a HAMP or proprietary mortgage modification during bankruptcy. Before this SD, generally residential mortgages could not be modified with a cram down, unlike commercial mortgages, in bankruptcy. However, the new rules will allow a bankruptcy judge more latitude to fashion a loan modification for homeowners in 2010.
 

Supplemental Directive 10-02                                March 24, 2010 
Home Affordable Modification Program – Borrower Outreach and Communication

Borrowers in Bankruptcy 
 Borrowers in active Chapter 7 or Chapter 13 bankruptcy cases must be considered for HAMP if the borrower, borrower’s counsel or bankruptcy trustee submits a request to the servicer.  With the borrower’s permission, a bankruptcy trustee may contact the servicer to request a HAMP modification.  Servicers are not required to solicit these borrowers proactively for HAMP.  Borrowers who are in a trial period plan and subsequently file for bankruptcy may not be denied a HAMP modification on the basis of the bankruptcy filing.  The servicer and its counsel must work with the borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures.  Servicers should extend the trial period plan as necessary to accommodate delays in obtaining court approvals or receiving a full remittance of the borrower’s trial period payments when they are made to a trustee, but they are not required to extend the trial period beyond two months, resulting in a total five-month trial                                                  
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Where the borrower filed the bankruptcy pro se, (without an attorney), it is recommended that the servicer provide information relating to the availability of a HAMP modification to the borrower with a copy to the bankruptcy trustee.  This communication should not imply that it is in any way an attempt to collect a debt.  Servicers must consult their legal counsel for appropriate language. 

period.  In the event of a trial period extension, the borrow er shall make a trial period payment for each month of the trial period, including any extension month.  When a borrower in an active Chapter 13 bankruptcy is in a trial period plan and the borrower has made post-petition payments on the first lien mortgage in the amount required by the trial period plan, a servicer must not object to confirmation of a borrower’s Chapter 13 plan, move for relief from the automatic bankruptcy stay, or move for dismissal of the Chapter 13 case on the basis that the borrower paid only the amounts due under the trial period plan, as opposed to the non-modified mortgage payments.    Borrowers who have received a Chapter 7 bankruptcy discharge in a case involving the first lien mortgage who did not reaffirm the mortgage debt under applicable law are eligible for HAMP.  The following language must be inserted in Section 1 of the Home Affordable Modification Agreement:  
“I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.” 

Borrowers are also able to modify their second liens in the new HAMP 2MP program:

Borrowers in Bankruptcy

Borrowers in active Chapter 7 or Chapter 13 bankruptcy cases are eligible for 2MP if the borrower, borrower’s counsel or bankruptcy trustee contacts the servicer to request consideration. With the borrower’s permission, a bankruptcy trustee may contact the servicer to request a 2MP modification. Servicers are not required to solicit these borrowers for 2MP when they are under bankruptcy protection. Borrowers who are currently in a trial period plan and subsequently file for bankruptcy may not be denied a 2MP permanent modification on the basis of the bankruptcy filing. The servicer and its counsel must work with the borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures." "Supplemental Directive 09-05 Revised March 26, 2010 Update to the Second Lien Modification Program (2MP)

For the full HAMP Supplemental Directive, go to:
https://www.hmpadmin.com/portal/programs/directives.html