Mortgage Modifications, Short Sales, Unnecessary for Discharged Mortgages

Financial hardships can strike Las Vegas residents more than once. Worse, they often occur to people who have already filed a Chapter 7 bankruptcy and received a discharge. This means a second bankruptcy is not an option.

For those who have underwater mortgages, that is, they owe more on their houses than those houses are worth. For them, a mortgage modification or a short sale may be the only remaining option. Whether they’re eligible is one thing, but more importantly, we need to know what happened in the Chapter 7 bankruptcy:

Did they sign a reaffirmation agreement with the bank even though they were making regular payments and not in danger of foreclosure?

What is a reaffirmation agreement and why is it important?

Read on.

A reaffirmation agreement is a deal between a bankruptcy petitioner and a secured creditor. The agreement keeps the secured property out of the bankruptcy estate so long as you promise to keep making payments on the debt. It requires three signatures: the debtor’s, the attorney’s, and the lender’s. The attorney must affirm that the debt will not constitute an “undue hardship” to the petitioner, which means the debtor’s household income will still be positive after subtracting the amount of payments. The attorney’s signature also demonstrates that the debtor was not coerced into signing the agreement.

If the homeowners were making payments and were not at risk of foreclosure, they probably exempted it because Nevada’s bankruptcy exemptions allow petitioners to keep up to $125,000 of homestead value out of the bankruptcy estate. After their Chapter 7 bankruptcy, their mortgage would’ve been discharged. This means they do not need to continue making payments on the house. In these circumstances, a modification or a short sale is unnecessary. For those who signed a reaffirmation agreement, however, the situation is different. The homeowners did not discharge their mortgage, so they are now stuck negotiating with a lender that has a far better bargaining position.

The lesson of this story is that Las Vegas homeowners seeking bankruptcy protection need experienced legal counsel to ensure their property is protected.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 today!

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