Mortgage Modification During and Around Bankruptcy

How does mortgage modification actually work in a bankruptcy case?

A mortgage modification changes the terms of your existing loan — the interest rate, the term, or how arrears are handled — by agreement with the servicer. Bankruptcy does not create a right to one. As the District of Oregon's rule puts it, a modification "is voluntary on the part of the secured creditor and the debtor" (D. Or. LBR 4008-2).

What bankruptcy adds is structure and, in many districts, permission to talk. Local rules in several districts confirm that a servicer contacting you or your attorney to negotiate does not by itself violate the automatic stay of 11 U.S.C. § 362 (W.D. Wash. LBR 4001-2; E.D. Wash. LBR 4001-5).

Then there is approval. Rules vary: in Oregon a Chapter 13 modification becomes effective when the trustee consents in writing or the court approves it, while in Chapter 7 it becomes effective when the trustee abandons the property (D. Or. LBR 4008-2).

What changes the answer for your case?

Four things move this analysis more than anything else.

Which chapter you are in. Most structured modification programs are built around Chapter 13, where a repayment plan and a trustee already exist. Chapter 7 modification is possible in districts that address it, but it works differently — in Oregon, for example, a Chapter 7 modification becomes effective only when the trustee abandons the encumbered real property (D. Or. LBR 4008-2).

Your district. This is the single largest variable. Some districts have adopted a formal Mortgage Modification Program; others have a short rule and no program.

Whether the servicer will engage. Nothing compels a lender to accept terms. Programs create a process, not an outcome.

Where your case stands. Approval requirements, notice periods, and plan amendments differ depending on whether your plan is confirmed.

What does federal law say about modifying a mortgage in Chapter 13?

The Bankruptcy Code draws a sharp line here. A Chapter 13 plan may "modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence" (11 U.S.C. § 1322(b)(2)). In plain terms, the plan itself generally cannot rewrite the interest rate or principal on your home loan.

What the plan can do is cure the default. Section 1322(b)(3) allows a plan to "provide for the curing or waiving of any default," and § 1322(b)(5) allows curing a default within a reasonable time while maintaining payments on a debt whose last payment comes due after the plan ends (11 U.S.C. § 1322).

That combination — no cramdown on the residence, but a right to cure arrears over the plan — is exactly why a voluntary modification negotiated with the servicer matters so much.

Can you change your Chapter 13 plan after a modification is approved?

Yes, and you often have to. A modified mortgage changes your monthly payment and how arrears are treated, so the plan usually needs to catch up.

Before confirmation, "the debtor may modify the plan at any time before confirmation" as long as the modified plan still meets § 1322 (11 U.S.C. § 1323). After confirmation, the plan may be modified on request of the debtor, the trustee, or the holder of an allowed unsecured claim to increase or reduce payments on a class of claims, or to extend or reduce the time for those payments (11 U.S.C. § 1329(a)).

There is a ceiling. A plan modified after confirmation may not run past the applicable commitment period unless the court approves a longer one for cause, and the court may not approve a period expiring more than five years after the first payment was due (11 U.S.C. § 1329(c)).

• Pre-confirmation: file the modified plan; it becomes the plan (11 U.S.C. § 1323)
• Post-confirmation: modification is subject to notice and a hearing (11 U.S.C. § 1329(b))
• Some districts also require amended schedules within a set window after approval (D. Mass. LBR Appendix 1, Rule 13-15)

Where do local and district rules differ most?

This is the part people underestimate. The Code says little about modification procedure, so districts fill the gap and they do it very differently.

Some have named programs. The District of Nevada adopted uniform Mortgage Modification Program procedures for Chapter 13 cases (Nev. LBR 3015.1). The District of Arizona runs a Mortgage Modification Mediation program with a mediator registry and capped conference time (U.S. Bankr. Ct. D. Ariz., Mortgage Modification Mediation Program Procedures). The District of Columbia's program is open to qualified Chapter 11, 12, and 13 debtors (D.C. LBR 6004-3). Rhode Island runs a loss mitigation process instead (R.I. LBR 9074-1).

Others keep it simple: Connecticut applies FRBP 4001(d) and requires the other party's consent before a motion is filed (D. Conn. Bankr. L. R. 4001-4).

Check your own district's rules before assuming any of this applies to you.

What does mortgage modification mediation look like in practice?

The Middle District of Pennsylvania's program is a useful concrete example, and its terms are specific. Eligibility there requires regular, verifiable income, owner-occupancy of the primary residence, and a mortgage balance under $729,750 with an unaffordable payment due to hardship (M.D. Pa. LBR 9019-3).

During the process, the debtor makes monthly post-petition payments of 75% of the current mortgage payment, supplies two years of signed tax returns and 60 days of payment advices, and pays a $125 mediation fee that the mortgage creditor matches. Mediation is to be completed within 60 days unless extended.

If mediation fails, the debtor must file an amended plan within 21 days to address pre-petition and any accrued post-petition arrears. Arizona caps required conference time at two hours total unless the court orders otherwise.

How does a trial payment plan work inside a Chapter 13 case?

A trial modification is a short-term arrangement offered as a precursor to a permanent one — that is how the Western District of Washington defines a "temporary or trial mortgage modification" (W.D. Wash. LBR 4001-2). The practical question is where the money goes while the trial runs.

In the Western District of Washington, a debtor may make a written request directly to the Chapter 13 trustee for authority to enter a trial modification, attaching the proposed agreement. If the debtor was delinquent at the petition date, the trustee is authorized to disburse the modified payments from plan payments whether or not the plan is confirmed, and the debtor's plan payments must be large enough to cover that plus the trustee's fee.

In the Western District of Missouri, the debtor elects to pay directly or through the trustee, and either way the trustee stops disbursing on mortgage arrearage claims during the trial period (W.D. Mo. LBR 3082-1).

What documents and information are involved?

Modification review is document-heavy, and missing paperwork is a common reason a request stalls. The specifics come from your district's rule, but the pattern is consistent.

The Middle District of Pennsylvania requires complete bankruptcy schedules plus the last two years of signed tax returns, the last 60 days of payment advices, and any other document the mortgage creditor requests — with failure to supply them within 30 days of admission being grounds for dismissal from the program (M.D. Pa. LBR 9019-3).

On the court side, motions carry their own requirements. Massachusetts requires the fully executed agreement signed by both sides, a cover sheet summarizing current and modified terms, and filing within 45 days of receiving the executed agreement (D. Mass. LBR Appendix 1, Rule 13-15).

• Complete, accurate bankruptcy schedules
• Recent tax returns and pay advices (payment advices)
• The proposed or fully executed modification agreement
• A summary of current versus modified terms, where the district requires one
• In D.C.'s non-MMP track: the term, principal, interest rate, and any future payment changes or balloon payments (D.C. LBR 6004-3)

What should you ask a bankruptcy lawyer about this?

Modification procedure is local, deadline-driven, and easy to get wrong without help. These questions get you a useful answer fast.

Bring your loan statement, any servicer correspondence, and a rough number for how far behind you are. If a foreclosure sale date exists, say so first — timing changes what is realistic.

Filing costs are separate from any modification. The Chapter 13 filing fee is $235 (28 U.S.C. § 1930(a)(1)(B)) plus a $78 administrative fee (Bankruptcy Court Miscellaneous Fee Schedule, Item 8). Chapter 7 is $245 (28 U.S.C. § 1930(a)(1)(A), (f)(1)) plus the same $78 administrative fee and a $15 trustee surcharge (Bankruptcy Court Miscellaneous Fee Schedule, Item 9).

• Does this district have a mortgage modification or loss mitigation program, and am I within its criteria?
• Does a trial modification here get paid directly or through the trustee?
• Will my plan need to be amended, and when?
• What happens to my arrearage claim if the modification is approved?
• What are the consequences if the modification is denied or I miss a trial payment?

Frequently asked questions

Does filing bankruptcy stop a mortgage modification I already started?

Not automatically. Several districts have rules stating that a mortgage creditor's contact with the debtor or debtor's counsel to negotiate a modification does not, by itself, violate the automatic stay of 11 U.S.C. § 362 (W.D. Wash. LBR 4001-2; E.D. Wash. LBR 4001-5). What may change is who must approve the final agreement and whether your plan needs amending.

Can a Chapter 13 plan lower my mortgage interest rate?

Generally not for your principal residence. Section 1322(b)(2) allows a plan to modify the rights of secured claim holders "other than a claim secured only by a security interest in real property that is the debtor's principal residence." A plan can cure arrears over time under § 1322(b)(3) and (b)(5), but changing the rate itself typically requires a voluntary agreement with the servicer.

Is mortgage modification mediation mandatory?

No. In the District of Columbia, participation in the Mortgage Modification Program "shall be voluntary" for both debtors and creditors, and debtors may seek to modify outside the program instead (D.C. LBR 6004-3). Districts with no program handle modification by motion; Connecticut, for example, requires the other party's consent before the motion is filed (D. Conn. Bankr. L. R. 4001-4).

What happens if mediation does not produce a modification?

You usually have to address the arrears through the plan instead. In the Middle District of Pennsylvania, if the program is unsuccessful and no modification is agreed to, the debtor must file an amended or modified Chapter 13 plan within 21 days addressing pre-petition arrears and any post-petition arrears accrued from reduced payments; otherwise the mortgage creditor may move for relief from the automatic stay (M.D. Pa. LBR 9019-3).

Can you modify a mortgage in a Chapter 7 case?

Some districts address it directly. Oregon's rule allows a mortgage creditor to negotiate a modification with the debtor and debtor's attorney at any time during a Chapter 7 case, with the modification becoming effective when the trustee abandons the encumbered real property (D. Or. LBR 4008-2). Many districts have no Chapter 7 modification rule at all, so this varies considerably.

Does a modification cost anything beyond the filing fee?

It can, and it depends on your district. The Middle District of Pennsylvania requires a $125 mediation fee from the debtor and a matching $125 from the mortgage creditor, neither refundable (M.D. Pa. LBR 9019-3). Rhode Island's loss mitigation form involves debtor consent to legal fees up to a court-allowed amount (R.I. LBR 9074-1). Ask before you start.

How long does the process take?

Districts that set timelines tend to use weeks and months, not days. Middle District of Pennsylvania mediation is to be completed within 60 days unless extended, and its status-report rule references a 120-day mark from the participation order (M.D. Pa. LBR 9019-3). Arizona schedules a final conference within 30 days after the initial one if no agreement is reached.

Sources

• 11 U.S.C. § 1322 — Contents of plan · official source
• 11 U.S.C. § 1323 — Modification of plan before confirmation · official source
• 11 U.S.C. § 1329 — Modification of plan after confirmation · official source
• 11 U.S.C. § 362 — Automatic stay · official source
• D. Or. LBR 4008-2 — Voluntary Modification of Debt Secured by Debtor's Residence in Chapter 7 and Chapter 13 Cases
• W.D. Wash. LBR 4001-2 — Voluntary Modification of Debt Secured by Real Property
• E.D. Wash. LBR 4001-5 — Voluntary Modification of Debt Secured by Debtor's Residence
• M.D. Pa. LBR 9019-3 — Mortgage Modification Mediation Program
• D.C. LBR 6004-3 — Mortgage Loan Modification by Chapter 13 Debtor
• Nev. LBR 3015.1 — Chapter 13 Mortgage Modification Program
• U.S. Bankr. Ct. D. Ariz., Mortgage Modification Mediation Program Procedures
• W.D. Mo. LBR 3082-1 — Home Mortgage Modifications in Chapter 13 Cases
• D. Mass. LBR Appendix 1, Rule 13-15 — Borrowings or Refinancing of Estate Property; Loan Modification Agreements
• D. Conn. Bankr. L. R. 4001-4 — Loan Modifications
• R.I. LBR 9074-1 — Loss Mitigation Program
• 28 U.S.C. § 1930(a)(1)(B)
• 28 U.S.C. § 1930(a)(1)(A), (f)(1)
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9

Related

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