Massachusetts Bankruptcy Court cracks down on terms of loan modification agreements

The bankruptcy courts in Massachusetts have begun a crackdown on loan modification agreements that seek to reduce the court’s power over lenders.

In a standing order issued on March 2nd, the court has nullified any provision in a loan modification agreement that tries to eliminate a debtor’s automatic stay if they default after filing a bankruptcy case.

The “automatic stay” provisions protect debtors by requiring creditors to get explicit court approval for any actions they want to take against debtors who have filed for bankruptcy protection.

The new order makes it clear that in Massachusetts, a lender will have to get a bankruptcy judge’s approval before taking any aggressive action against a homeowner with an active Chapter 7 or Chapter 13 case in court, and they cannot rely on fine print in loan modification deals that try to waive this requirement.

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