Congress is scheduled to vote today on altering the Bankruptcy code to allow judges to modify mortgages. This vote about a potential change in bankruptcy law has Orange County bankruptcy attorneys and their bankruptcy clients watching attentively. From the McClatchy Tribune Wire Service:
“The U.S. House is expected to vote today on a proposal that would allow judges to modify mortgages of people who file for bankruptcy — and could bring a new wave of filings, local court officials say.
The proposed “cramdown” legislation has been controversial — lenders, for one, have opposed it. But bankruptcy attorneys and credit counselors say it could be a smart solution, helping struggling homeowners and making sure lenders get at least a portion of their money back.
It’s part of a broader $75 billion housing plan, which President Obama’s team outlined Wednesday. The plan features cash incentives for mortgage holders who cut deals with borrowers for new, more affordable terms.
The bankruptcy provision is expected to go to the Senate soon after the House vote, and rules there will make passage more difficult.
Under current laws, bankruptcy judges lack the authority to modify most mortgages. They can approve modifications for credit-card debt and other loans, including second-home mortgages. In Chapter 12 cases, usually filed to save family farms, mortgages can be adjusted to reflect the current value of a debtor’s home and farm, rather than the original loan amount.
The bill would allow bankruptcy judges to alter the terms of a mortgage, a process known to the industry as ‘cramdown,’ if no other options remain for homeowners. Judges could extend the payment period or lower the value of the mortgage on the home to the existing market value.”
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