If a mortgage company approves a loan modification, the loan modification agreement must be approved by the bankruptcy court. Typically, the court will enter an order approving the loan modification without resistance. However, generally, in a chapter 13, the trustee will require a debtor to amend their income and expense schedules and their bankruptcy plan.
At the time of the bankruptcy filing, the mortgage company will file a proof of claim reflecting the total amount due and the arrears balance. At some point, the debtor will be required to pay the pre-filing mortgage arrears, through the bankruptcy plan, unless the mortgage company approves a loan modification. Typically, a mortgage loan modification removes the arrears and spreads the arrears over the life of the loan, either with or without a balloon payment at the end of the loan.
After the bankruptcy court enters an order approving the loan modification, the debtor will be required to modify their bankruptcy plan to reflect the loan modification approval. Also, the debtor will be required to amend their income and expense schedules to reflect their new disposable income amount,which includes their new mortgage payment and the elimination of any previous payment towards the mortgage arrears. The new chapter 13 monthly trustee payment, must at least reflect their new monthly disposable income amount.
Robert Manchel may be reached at (866) 503-5655, to discuss your bankruptcy and loan modification questions.