The Senate is debating on changes made to the bankruptcy law which allow judges to reduce a homeowners interest rate and mortgage payment. This is more good news for people facing the threat of foreclosure to save their homes.
Under the current law, judges cannot change the terms of a loan and mortgage companies can foreclose 90 days after a bankruptcy filing. The author of this bill, Senator Richard Durbin (D-Ill) believes that this new law enables homeowners to work out an affordable mortgage while keeping their homes. With the passing of this bill, The Helping Families Save Their Homes Act, families, as a last resort, can file for Chapter 13 Bankruptcy and work with a judge and the lender to modify the mortgage. This bill will reach out to approximately 2.2 million families in danger of losing their homes due to the collapse of the subprime mortgage market.
The current Bankruptcy Law allows virtually every type of personal debt, including vacation homes and family farms, to be restructured in bankruptcy with the exception of mortgages on a primary residence. This exception dates back to 1970's when most mortgage were fixed rates. Currently, most of the financial distress is caused by mortgages on primary residence. Therefore, an update to this law would be timely.
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