Tuesday, January 12, 2010

HAMP Mortgage Modification and Chapter 13 Bankruptcy

The effectiveness of the HAMP or "Obama Plan" for mortgage modification has been widely criticized. Many homeowners complain that it is extremely difficult to communicate with their mortgage servicers.

One way to attempt to overcome this difficulty is to combine a request for a HAMP mortgage modification with a chapter 13 bankruptcy filing. Although the bankruptcy laws cannot force a mortgage servicer to approve a HAMP mortgage modification request, the filing of a chapter 13 bankruptcy in conjunction with a HAMP request may be of benefit in many cases. In fact, the Bankruptcy Court in the Southern District of Florida has recently begun to confirm some chapter 13 plans that provide for the anticipated payment under a HAMP modification request. Although the Bankruptcy Court cannot require a mortgage modification, it can prohibit the mortgage servicer from resuming a mortgage foreclosure until it properly considers a HAMP modification request and duly denies or accepts it.

A typical chapter 13 plan would provide for the anticipated HAMP modified mortgage payment as 31% of the homeowner's gross income. The 31% amount would cover principal, interest, taxes, insurance and associations.

The chapter 13 plan would also provide for the avoidance of any second mortgage that is wholly "under-water" and for a dividend to unsecured creditor. Some mortgage servicers may be more favorable to the modification of the first mortgage if the homeowner is no longer required to pay the full amount of his second mortgage, credit cards, and other unsecured debt.
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