Reaffirmation agreement becomes effective upon filing with the Court if represented by an attorney and not presumed an undue hardship.  Per the reaffirmation agreement language set out in the Code, “…No court approval is required if your reaffirmation agreement is for a consumer debt secured by a mortgage, deed of trust, security deed, or other lien on your real property, like your home.”  § 524(k)(3)(J)(i)7.

Therefore, unless the reaffirmation agreement is set for hearing, there will likely be no docket entry referencing an approval or other disposition of the agreement.

Discharge Does: Eliminate personal liability for the underlying mortgage debt.  The Code indicates that the effect of a discharge is to void any judgment at any time obtained and operate as an injunction against an action to assert personal liability against the debtor.  See § 524(a).  Therefore, personal liability on secured debts is eliminated by a Chapter 7 discharge.

Discharge Does Not: Wipe out a real property security interest.  See Dewsnup v. Timm, 502 U.S. 410 (1992).  The discharge does not preclude seeking payments on a security interest in the debtor’s primary residence in lieu of pursuit of in rem relief.

(j)         Subsection (a)(2) does not operate as an injunction against an act by a creditor that is the holder of a secured claim, if—

  1. such creditor retains a security interest in real property that is the principal residence of the debtor;
  2. such act is in the ordinary course of business between the creditor and the debtor; and
  3. such act is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien.

Therefore, the obtuse scenario that remains for the secured creditor is no underlying debt, but a lingering security interest.

Discharge Does Not: Prevent the Debtor for applying and being approved for a loan modification – at least through the Home Affordable Modification Program (“HAMP”).  To the extent that bankruptcy courts have considered the relationship between reaffirmation and HAMP modification, the conclusion has universally been that a reaffirmation cannot be required.  In citing treasury regulations, courts have held that treasury directives make clear “that debtors who file bankruptcy were intended to be eligible for HAMP post-bankruptcy, without being required to reaffirm their mortgage debt”  In re Tincher, CA 11-01164-DD, 2011 WL 2650569 (Bankr. D.S.C. July 5, 2011), citing Supplemental Directive 10–02, Home Affordable Modification Program–Borrower Outreach and Communication, at 8, available here.

Borrowers who have received a Chapter 7 bankruptcy discharge in a case involving the first lien mortgage who did not reaffirm the mortgage debt under applicable law are eligible for HAMP. The following language must be inserted in Section 1 of the Home Affordable Modification Agreement: “I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”

 

Accord, In re Bellano, 456 B.R. 220, 224 (Bankr. E.D. Pa. 2011); In re Owens, 10-72509, 2013 WL 4052874 (Bankr. W.D. Va. Aug. 9, 2013) (“…the lack of a reaffirmation agreement with the Bank and the issuance of the discharge to the Debtor do not appear to preclude the latter even now from filing an application under the HAMP program.”); In re Pope, 10-19688-RGM, 2011 WL 671972 (Bankr. E.D. Va. Feb. 17, 2011) (Finding that a lender’s requirement of reaffirmation as a condition precedent to consideration of a loan modification was improper).