gmac loan mod

[Over our heads]

Our 2nd is through GMAC. They have offered to lower the interest rate from 14.5% to 8.5%. They also want us to make 1 payment at the current rate, 1178$, then roll our missed payments back in.

My question is this: By agreeing to these new terms, is this essentially reaffirming the loan? We are underwater by about 50k (about half of the 2nd), so reaffirming in any way is unacceptable to me.

We are currently unemployed, and of course they want us to make a decision quickly.

[Over our heads]

Anyone?

[BobMango]

Where are you in terms of bankruptcy? If you are discharged then the debt was canceled if you didn't execute a reaffirmation. If you are awaiting discharge then you would want your attorney to review it. A reaffirmation is a very specific type of transaction and just singing something to modify your loan will not meet the test. A reaffirmation must be signed by your attorney (or a judge if filing pro se) and filed with the court to be valid.

[Over our heads]

We are closed and discharged, and we did not reaffirm the loan.

[calgirl67]

Are you underwater on your house? Or more specificly, is your 2nd underwater??

[Over our heads]

According to zillow (not accurate by any means I think) we are under water by about 50k. The 2nd is for 93k. So stripping it isn't an option, and I think we would have to offer at least the amount that would be secured to settle the loan, and I just don't have 45-ishk laying about.

Spoke with the lady again today, and she said it was simply a loan mod, not a refinance of the loan. I think I will spend a few hundred and have our BK lawyer take a look at the papers. I don't want them trying to sneak in a back door re-aff on us.

[onwards]

Where are you in terms of bankruptcy? If you are discharged then the debt was canceled if you didn't execute a reaffirmation.

That is simply not true. The debt is NEVER canceled. You are simply no longer personally liable for it (that is, it can no longer be collected from you). These two are quite different!

[CCCrazy]

That is simply not true. The debt is NEVER canceled. You are simply no longer personally liable for it (that is, it can no longer be collected from you). These two are quite different!

But the debt IS cancelled if it was discharged in BK, the lien is just still there - in other words, if it's discharged, and one were to settle a equity loan for 10 percent, the person would not have to pay taxes on the difference.

[onwards]

But the debt IS cancelled if it was discharged in BK, the lien is just still there - in other words, if it's discharged, and one were to settle a equity loan for 10 percent, the person would not have to pay taxes on the difference.

That's an oxymoron. If the debt was canceled, there would be no need to settle. Your PERSONAL and TAX LIABILITY is eliminated; not the debt. The lien is there because the debt still exists; it's just not possible to collect it from you, which is why the holder of the debt would have a (very powerful) motivation to settle it with you.

[CCCrazy]

ok Onwards, maybe you can give me some peace of mind. Please see the new thread I just started. So if the debt is settled on a 2nd, the lien automatically goes POOF?

[justbroke]

There are two concepts in Bankruptcy when it comes to secured debt and they are in rem and in personam. The former, in rem, means against the collateral, and the latter, in personam, means against the person. Bankruptcy discharges the "in personam" or personal aspect of the debt, but not the creditors "in rem" rights to repossess or foreclose upon the property, which is technically not the debt.

So, the "debt" is actually canceled because the "debt" is an "in personam" thing. However, the security instrument (Promissory Note or Loan Agreement) is not canceled insofar as you pledged a piece of collateral in order to cover the loan.

In real estate parlance, the "debt" is the "promissory note" and the "security instrument" is the "mortgage". The debt is in fact canceled, but the mortgage remains. This is why lenders can pursue their "in rem" rights against the collateral. Bottom line, you don't have to pay (debt canceled), but lender still has their "security instrument" to recover the collateral and use it to payoff the debt.

Hope that helps.

[onwards]

Justbroke,

If we are going to get technical... this is not entirely accurate either. For example, foreclosure is not against the property; rather the lender forecloses on the borrower's RIGHT TO REDEEM the property. I think were are referring to "debt" in different contexts though, and I have no issue with your comment.

[justbroke]

We probably are talking past each other. Mine wasn't specific, really, to foreclosure but to the security instrument and why a lender can still take a property even though the Promissory Note is no longer enforceable against the debtor.

Foreclosure just takes the pledged collateral (listed in the security instrument) in order to satisfy the promissory note (balance). That it removes a debtor's ability to redeem (or catchup or otherwise payoff the note), is irrelevant, I think, in the context of responsibility of debt. I really don't even care about foreclosure in this context.

[BobMango]

That is simply not true. The debt is NEVER canceled. You are simply no longer personally liable for it (that is, it can no longer be collected from you). These two are quite different!

And the net effect of this difference on a secured debt is exactly what? Whether the debt is canceled or discharged or continues but the lender is precluded from collecting; the end result is that the OP is no longer responsible for it. With secured debt in Chapter 7 bankruptcy, the debt is canceled (or discharged if you prefer), but the security interest remains with the lender and they can come get the security if you fail to honor the terms of the original loan.

The OPs original question is still outstanding I think. Does this become a new loan if they sign the modification agreement? It's definitely not a reaffirmation, but since it's executed after discharge is it a new obligation?

[justbroke]

The OPs original question is still outstanding I think. Does this become a new loan if they sign the modification agreement? It's definitely not a reaffirmation, but since it's executed after discharge is it a new obligation?

The consensus is that this would be a "back-door" reaffirmation and it would, technically, be unenforceable. However, that means dragging it back to the Bankruptcy court, reopening your case, and defending it there. Bankruptcy Judges don't like back-door reaffirmations at all! A modification could have been dealt with up-front and as part of the reaffirmation process within the bankruptcy's pendency.

So, if I had to answer this... beware. The lender will probably file a new Note that supersedes the existing one. The lender may attempt to treat this as new consideration and as a new loan, and that is not discharged. This is where the trouble lies.

The Bankruptcy Courts, on whether it's a back-door reaffirmation or not, consider whether there is new consideration. If they reset the principal, is that new consideration? Things to consider. I think this is a new phenomenon (post-discharge modifications), and we'll just have to see how it plays out in caselaw.