The Short Answer
Yes, you can pursue a loan modification while in an active Chapter 13 bankruptcy — but the process requires coordination with your bankruptcy attorney every step of the way. You'll need a release form so your mortgage servicer can communicate with you directly, and any modification agreement must be approved by the Bankruptcy Court before it takes effect. You cannot simply accept a modification on your own and skip court approval. If approved, your attorney will need to revise your Chapter 13 plan to reflect the new payment terms.
Yes, you may. Please contact your bankruptcy attorney and request a release form allowing the mortgage company to discuss your loan with you. Since you are in an active bankruptcy, the bankruptcy code protects you from being contacted by any creditors. This protection limits the contact between the debtor and creditor, but allows for mediation by an attorney. The release form will allow you to work directly with the mortgage institute.
Once the mortgage company has received the form and acknowledged the permission to discuss modification, you will need to start on the HAMP form (Home Affordable Modification Program). Your mortgage company may have a specific site for you to access all the necessary forms. I encourage you to explore your bank’s website for information concerning this program. If this endeavor proves fruitless, check out the Departments of the Treasury & Housing and Urban Development’s Making Homem Affordable website. There are links to help you prepare the initial package to present to your mortgage servicer. It is very important to prepare this paperwork thoroughly and precisely. Make sure to document any discussions with your mortgage company and to also make copies of everything. Once the initial package is together and absolutely complete, you will send the paperwork via certified mail (with a return receipt.)
Now is the lovely waiting game. Although it is hard, you may need to be very patient with your mortgage company. A phone call to check on the status of your modification every month, or every two weeks if necessary, should suffice. IMPORTANT: Continue to make your Trustee payments for your Chapter 13 bankruptcy! If you fall behind on your payments to the Court, your case will be dismissed and you will no longer be under the protection of the Bankruptcy laws.
Once you have heard from the mortgage company, you will contact your attorney again. You will need to provide your attorney with the confirmation of the agreement to the modified payments. The Bankruptcy Court must approve the loan modification before it goes into effect! A Motion to Incur Debt must be filed on your behalf in order for the modification to be considered. It may take up to 30 days before you will receive a response from the Bankruptcy Court. After a response is received, your budget and plan payments will need to be revised by your attorney.
Note: before you decide to endeavor on this extensive project, you must realize: when your attorney files a motion or revises your plan on your behalf, there are attorney fees that will be added into your plan. So before you commit to a modification with your mortgage, make sure the reduced payments are worth the hassle.
Key Takeaways
- Contact your bankruptcy attorney first to obtain a release form before speaking with your mortgage servicer about any modification.
- The Bankruptcy Court must approve your loan modification — your attorney will file a Motion to Incur Debt, and approval can take up to 30 days.
- Never stop making your Chapter 13 Trustee payments during this process — falling behind will get your case dismissed and end your bankruptcy protection.
- Document every conversation with your mortgage company in writing and send all paperwork via certified mail with a return receipt.
- Attorney fees for filing the motion and revising your plan will be added to your case, so weigh whether the reduced mortgage payment justifies the cost before committing.
- Once the court approves the modification, your attorney must update your Chapter 13 budget and plan payments to reflect the new terms.
Attorney Insight
The mistake I see most often is clients who reach an informal agreement with their mortgage servicer and then start paying the modified amount without getting Bankruptcy Court approval first. That creates a serious problem — you're now in breach of your confirmed Chapter 13 plan, and the trustee will notice. In North Carolina, the Chapter 13 trustees are meticulous about plan compliance, and an unapproved payment change can trigger a Motion to Dismiss. The modification isn't real until the court says it is, and skipping that step can cost you the entire case.
