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HAMP and Chapter 13 Bankruptcy: Know Your Rights

In our last blog, we discussed the basics of the federal Home Affordable Modification Program (HAMP) and how it can help homeowners reduce their mortgage payments and avoid foreclosure. Today, we’ll talk about a specific change in the HAMP program that can give homeowners an even greater chance to keep their homes.

HAMP now allows homeowners to seek loan modification even if they have filed for Chapter 13 bankruptcy protection. In fact, mortgage servicers are now required to consider homeowners who are in Chapter 13 bankruptcy for a loan modification to lower monthly mortgage payments, even if they have previously applied for HAMP and been turned down, if the homeowner, their attorney or bankruptcy trustee requests consideration. Prior to this change, borrowers in bankruptcy were eligible for HAMP at the mortgage servicer’s discretion.

And though it may sound counterintuitive, this means that filing for Chapter 13 protection can actually be helpful for people who need to lower to their mortgage payments. How so? When trying to modify a mortgage outside of bankruptcy protection, lenders examine a person’s current credit. If much of that debt is recalculated and reduced during the bankruptcy process, that person’s credit, via their monthly debt, changes significantly.

To recap the basic HAMP guidelines, the following are necessary to qualify:

  • The mortgage balance must be $729,750 for a single-family home or less.
  • Mortgages must predate January 1, 2009.
  • You must qualify for “financial hardship” via job loss, job change, health problem, or other unexpected life events.
  • You must show that you can afford to pay the lower proposed mortgage payment.

It’s also possible for mortgage holders with an active Chapter 13 who are HAMP-eligible to permanently covert their loan modification without a trial period, with bankruptcy court approval and if they make all post-filing payments prior to the modification agreement with at least three of the payments equal or greater to the proposed modified payment.

In short, if you are in danger of losing your home, many viable options exist that are worth reviewing with an experienced bankruptcy attorney. Please contact Trey Robbins, Esq., at Martin Attorneys, PA for additional information about your rights under the federal HAMP program.

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