The Short Answer
You can pursue a loan modification whether you're currently in bankruptcy or not — the process just requires a few extra steps if you have an active case. Start by contacting your mortgage company directly to express interest, then complete their documentation package thoroughly and submit it via certified or overnight mail. If you're in an active Chapter 13, court approval is required before the modification can take effect, which adds roughly 30 days to the timeline. If your bankruptcy is already closed, you can generally work with the mortgage company directly, though a real estate attorney can help you review the final agreement.
It is possible to obtain a loan modification even if you have filed bankruptcy. At this time, most mortgage companies would rather work out a loan modification agreement, if viable, than to foreclose on your home. The last thing most mortgage companies want is another vacant house!
Steps to Follow:
Step #1: You should contact your mortgage company and express your interest in obtaining a loan modification. If you are in bankruptcy, they may indicate that your bankruptcy attorney must provide a release form before they will agree to speak with you. If that should occur, contact your bankruptcy attorney to obtain the authorization letter.
Step #2: After receipt of the authorization letter, the mortgage company will send a package of materials for you to complete as well as request that you provide income tax returns, paystubs, and other relevant information. You should complete the paperwork in its entirety and provide all the information the mortgage company requested. If you do not thoroughly complete the package or fail to provide additional information they requested, the mortgage company may reject your request for a modification or it may slow down the process.
Step #3: Before you submit the package to the mortgage company, Duncan Law recommends you make a copy of your completed package. This will come in handy if the mortgage company has specific questions or indicates they did not receive a document in your package.
Step #4: We also recommend you send your loan modification package to the mortgage company either overnight mail or certified mail so that you can track your package and be sure it was received by the mortgage company. Often the mortgage company will provide an overnight envelope for mailing the loan modification package. Be sure to keep your receipt so you can track the package.
Step #5: Now is the hardest part…waiting for a response. Each mortgage company is different when it comes to the timeline for responding on the loan modification. Some mortgage companies indicate they will respond in three to four months, others indicate it can be up to one year. It does not hurt to be the “squeaky wheel”. If you haven’t heard from the mortgage company, you may want to follow-up every two weeks. Do not be surprised if the mortgage company requests additional information.
Step #6: Once you are approved for a loan modification, you may need to contact your bankruptcy attorney.
If you are in an active Chapter 7 bankruptcy, you should contact your bankruptcy attorney to see if it is necessary to obtain the Court’s approval of the modification agreement.
If you were in a Chapter 7 bankruptcy and your case has been completed, a final decree has been issued, it is not necessary to contact your attorney. You do not need approval to can sign the documents with the mortgage company. However, you may find it helpful to retain a real estate attorney to review the modification agreement.
If you are in an active Chapter 13, you should contact your bankruptcy attorney. It will be necessary for the bankruptcy court to approve the loan modification agreement. Your bankruptcy attorney will need the terms of your modification agreement so they may file a Motion to Incur Debt. It takes approximately 30 days to obtain approval of the loan modification from the bankruptcy court. You should work closely with your bankruptcy attorney through this process.
If your Chapter 13 bankruptcy has been dismissed or discharged, it is not necessary to obtain the bankruptcy court’s approval. You may work directly with the mortgage company, but again, you may want to seek the advice of a real estate attorney.
Again, it is important to be thorough in completing your loan modification paperwork, and persistent in your follow-up and interactions with the mortgage company. Good luck in your efforts to obtain a loan modification with your mortgage company.
Key Takeaways
- If you have an active bankruptcy, your mortgage company may require a written authorization letter from your bankruptcy attorney before they'll discuss a modification with you.
- Complete the loan modification package in full — missing documents or incomplete answers are one of the most common reasons mortgage companies reject or delay requests.
- Always copy your entire completed package before mailing it and send it certified or overnight mail so you have proof of receipt.
- Response timelines vary widely by lender — some respond in three to four months, others take up to a year — so following up every two weeks keeps your file from going cold.
- Active Chapter 13 filers must have the bankruptcy court approve the modification agreement through a Motion to Incur Debt before signing anything with the lender.
- If your bankruptcy is dismissed or discharged, you can work directly with the mortgage company without court approval, but having a real estate attorney review the final terms is worth considering.
Attorney Insight
The mistake I see most often is a Chapter 13 client signing a loan modification agreement before getting court approval — and that can void the modification entirely and create serious problems with their plan. In an active Chapter 13, the court must approve the new loan terms through a Motion to Incur Debt before you put pen to paper with your lender; skipping that step isn't a technicality, it's a real legal exposure. I also see clients hurt themselves by submitting incomplete packages and then going quiet — lenders will close your file without notice. Being the squeaky wheel isn't just good advice; in my experience, it's often the difference between an approval and a dead file.
