Behind again after mortgage modification?

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Dear Bankruptcy Adviser,
I filed for Chapter 7 bankruptcy after I completed a loan modification with my mortgage company. Then, I fell two months behind with my payments. I sent in my June payment July 27. My mortgage company sent it back to us, saying that we have to bring our mortgage payments current since we filed for bankruptcy. Now, they want us to send three months of payments or they will start foreclosure. Please advise us on what to do. Thanks.
— Matt

Dear Matt,
You could be in a very difficult situation, one that does not have many options. If you are not able to work out a solution with the lender, then you could lose the house. While you can file for bankruptcy without an attorney, you might need to determine whether you qualify for a Chapter 13 filing. This is much more complicated than the more common Chapter 7 bankruptcy and may require legal assistance. I would advise you to consult with an attorney.

You already have an approved, active loan modification in place. That means that you were delinquent in the past, worked with the lender to change or rework the terms of your loan and became delinquent again. The lender might not have much interest in working with you a second time.

The other hurdle you face is that you are now inside bankruptcy and many lenders are very hesitant to do anything that would violate bankruptcy law. In fact, some lenders are so tentative that they will not even talk to you while your case is still active.

At this point, you can try to contact your lender via the bankruptcy department and see whether another loan modification can be worked on while you are inside the bankruptcy. The lender may be willing to work with you and may require you to sign a reaffirmation agreement on the loan you have.

A reaffirmation agreement is a legally enforceable contract filed with the bankruptcy court, which states your promise to repay all or a portion of a debt that may otherwise have been subject to discharge in your bankruptcy case.

You must proceed very carefully when you consider signing this type of agreement. Depending on the laws of the state in which you live, this agreement could wipe out all the protections you currently have through the bankruptcy. The bankruptcy wipes out your liability to pay on the mortgage such that if you were to walk away from the house after the bankruptcy then the lender cannot do anything to come after you. However, this agreement reinstates the liability that otherwise would be eliminated by your bankruptcy discharge.

Your situation isn’t impossible, but you have limited options. The lender might consider you a worthy candidate for a new loan modification. For that reason, you simply must make the maximum effort to contact and stay in contact with the lender in case that’s a possibility.

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