Loan Modifications can be done even inside a bankruptcy
May 29th, 2009, 7:54 am
For Debtor’s in Massachusetts, a new standing order of the Bankruptcy court may provide for significant mortgage relief even when the automatic stay is in place. The benefit f mortgage workouts or loan modifications as they are commonly referred to has not been an option for many Debtors who have filed for protection under the bankruptcy laws. More specifically, Section 362 of the bankruptcy code makes it illegal for a Creditor and Debtor to negotiate a change to the terms of their mortgage or any other contract for that matter pursuant to the Automatic Stay. Now a standing order by the court may provide some relief.
Standing Order 09.03, reads in pertinent part, “To the extent that the Automatic Stay Pursuant to 11 U.S.C. s. 362(a) may be applicable to a Debtor or property of the estate and has not been terminated or lifted, relief from the automatic stay shall be deemed granted, without a hearing or further order … in order to enable a Secured Creditor … to discuss and or negotiate with a Debtor a proposed modification of the terms of any secured indebtedness including without limitation, a home mortgage… Further, nothing herein shall authorize a Debtor or Creditor to enter into a loan modification without Court authority.”
What the foregoing would seem to say is that it is now permissible to file a chapter 7 or 13 bankruptcy in order to discharge unsecured debt and while inside that bankruptcy, conduct a loan modification. Once a proposal has been put forth by the Creditor and accepted on principal by the Debtor, the Parties only then need to obtain court approval for such a transaction.
