Bankruptcy

Chapter 13 Bankruptcy Changes Clear Key Hurdle: Hope For Homeowners

By Jonathan Alper

I received a few phone calls today about articles in national newspapers concerning prospective changes to Chapter 13 bankrupcy law. Plan to Cut Foreclosure Rate Clears Key Hurdle - WSJ.com. The proposed new law is intended to help homeowners modify mortgage loans in order to save their primary residence from foreclosure. The newspapers report that the proposed new Chapter 13 law gives bankruptcy courts the power to force changes in the interest rate, principal balance, and monthly payments of mortgages on primary residences. Homeowners can use Chapter 13 bankruptcy to cram-down mortgages on upside down homes to the current home value and change interest rates to current market rates. The newspaper states that legislators hope the homeowners immediately can use the threat of the new Chapter 13 law for convince their mortgage lenders to make voluntary mortgage modifications.

No one knows if and when this legislation will become law. Most media reports state that the proposed changes have broad political support.  For now, some people with upside down homes  may want to hold on to homes for a few more months if they think they would use the revised Chapter 13 bankruptcy laws to save their homes. Even people who previously filed Chapter 7 bankruptcy to eliminate credit card debts so they could hold on to their homes may be able us use this new law to reduce their mortgage payments by filing a Chapter 13 bankruptcy after their Chapter 7 discharge. We will have to wait until the final legislation is drafted to accurately assess its potential beneifts for troubled homeowners.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Full post as published by Florida Bankruptcy Law on January 09, 2009 (boomark / email).