Here’s an email I got yesterday.
“Dear Mr. Weed,
“Just an update. I did receive my clearance and thank you for your help. I have a new question for you. My mortgage on my house was included in my bankruptcy. I have been paying it for the last year. They recently changed my rate and raised my monthly payment by $1000 a month. They offered me a refinance package that would only raise my payments by $400 a month.
“Here is my question. If I accept the refinanced mortgage, am I still covered by the bankruptcy, or is this a brand new loan and would no longer be covered by my bankruptcy from 3 years ago. ”
The answer is good news. The bankruptcy does still protect you. As long as you do NOT sign a reaffirmation for the mortgage during your case (one lawyer says reaffirming a mortgage is “nuts”), then the law still protects you with that lender for as long as you own that house.
(It also protects you from any new company or debt collector who later takes over that loan.)
You can pay for three or four years; and then decide to move out and owe them nothing. You can get a loan modification, pay for a while, and then change your mind and move out and still owe them nothing.
You can sign in blood that you promise to keep paying; and then change your mind and move out and you are still protected.
For how long? People ask me. Until the house is paid for. Once the house is paid for, you can’t give it back to the mortgage company. Why? Once the house is paid for, there’s no mortgage company to give it back to.
(This is an improvement that came into the law in 1978. Under the Bankruptcy Act of 1898, a new promise brought back the old debt.
(Now when you get back to good credit, if you refinance the loan with a new mortgage company–maybe to get a better interest rate–then you have a new loan. And you are back on the hook.)
If you do change your mind and move out, make sure you keep paying the HOA. After bankruptcy, you still owe the HOA for as long as you are the owner of the house.
{ 7 comments… read them below or add one }
Dear Mr. Weed,
First off, I commend you for this awesome forum and the fantastic information you are providing! Now for my question:
If I was discharged in a Chapter 7 BK, and then executed a Loan Mod Agreement with my lender, and HAVE NOT reaffirmed the debt, is there any way I could become liable for any future deficiency if I decide to do a short sale or a deed in lieu and the property is still upside down? Likewise, given that BK discharge provides an exemption from Cancellation of Debt income, is there any way I would lose that benefit or become liable for Cancellation of Debt income if I go forward with the Loan Mod, and then later do a short sale, deed in lieu, or let it go to foreclosure?
The loan modification is not a reaffirmation. You can sign in blood and it is still not a reaffirmation. It does not change your bankruptcy status or your tax status in any way. The debt is still discharged in the bankruptcy.
Mr. Weed,
Thanks for your prompt response! I actually have not signed the HAMP Mod Agreement yet, because I wanted to be sure I didn’t lose my BK protections. There is a clause in the Mod Agreement which states: “…the Loan Documents as modified by this Agreement are duly valid, binding agreements, enforceable in accordance with their terms and are hereby reaffirmed.”
Would it constitute an actual “Reaffirmation” of the debt, thus making me once again personally liable, if I execute the Modification Agreement with the above clause in it? (ie. “hereby reaffirmed”)?
the only way to reaffirm a debt for bankruptcy purposes is to sign a bankruptcy reaffirmation form and file it with the bankruptcy court while the bankruptcy is still going on. So once the bankruptcy is over, you can sign anything they put in front of you and you don’t have to worry. (Except of course, if you refinance the loan with a new lender–then it would be an after bankruptcy debt.)
Mr. Weed,
Thanks again for your response. I am in Missouri. Can I hire you as my attorney to review my Loan Mod Agreement and represent me, as necessary, regarding this issue? Please let me know what the steps would be?
Also, would you please remove my last name, if possible, from my prior comment.
Thanks again!
Mr. Weed,
Thank you so much for this wonderful blog. I filed Chapter 7 in 2009 and have been considering refinancing to lock in a lower rate. I now know not to refinance with another mortgage company other than the one I currently have. You have saved me from making a very big mistake. Keep up the good work!
Michelle
Michelle, thanks for your kind words.