On numerous occasions, Congress, unsuccessfully, attempted to pass a law granting bankruptcy judges the authority to modify loans. There is presently no such law, and bankruptcy judges and courts do not have the authority to modify any mortgages. However, mortgage companies may voluntarily modify any mortgage. Recently, due to the overwhelming number of foreclosure actions, mortgage companies have been consenting to modify mortgages, during a bankruptcy case in New Jersey. The debtors must meet the mortgage company’s criteria. Typically, the modification will make the following changes to the mortgage: change an adjustable rate to a fixed rate; reduce the interest rate; deem all payments current through and including the date of the modification; eliminate any and all arrears; increase the loan payoff by the amount of arrears; and, add the total arrears to the end of the loan. A debtor may enter into a loan modification during a Chapter 13 or Chapter 7 bankruptcy case.
As explained, a chapter 7 bankruptcy case lasts approximately five months, from the filing to completion or the Order of Discharge. After an Order of Discharge, the debtor may enter into a loan modification, without a court order. Therefore, depending on the debtor’s situation, it may be beneficial to enter into the loan modification after the Order of Discharge.
Typically, a loan is modified in a chapter 13 bankruptcy case, not a chapter 7 case. Prior to obtaining a loan modification, during the case, the debtor must obtain court approval. To obtain court approval, the debtor must file with the court a “Motion to Approve the Loan Modification.” The debtor must file with the motion a copy of the fully executed loan modification. Typically, no party in interest will contest the motion. If the loan is modified, the debtor will no longer be required to pay the mortgage arrears and the monthly mortgage payments will be modified. Consequently, the debtor must file with the court a modified plan, which will likely change the monthly trustee payments and the creditors who are entitled to trustee payments.
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The NJ bankruptcy attorneys at the Law Offices of Robert Manchel have been handling bankruptcy cases for nearly 20 years and have, in that time, succesfully represented thousands of clients through the bankruptcy process. If you are dealing with bankruptcy in New Jersey, contact us online or call us at 866.503.5655 for a free consultation.