Bankruptcy

Keep the Bankruptcy Option on the Table

By Bill McLeod, Esq.

The new Congress will be introducing legislation that will allow homeowners in bankruptcy to "cram down" their mortgages on their principal residences. When a home is worth less than the amount owed on the mortgage (or as I typically see, mortgages), a cram down will enable the homeowner to reduce the amount owed to the value of the property. Currently, debtors can only do this on investment property, and on property that is not solely the primary residence of the debtor (i.e., a multi-family dwelling).

From a Reuters report:

Courts can generally cut through complex mortgage contracts more aggressively than the private sector, said Wade Henderson, head of the Leadership Conference on Civil Rights, who has testified before Congress on the issue.

"The continued erosion of the housing market has probably made adopting this proposal inevitable," he said.

I also invite readers to check out Calculated Risk, and Tanta's discussions on cram downs. You'll find those links here.

The final version of what the new President will sign remains to be seen. However, any homeowner facing foreclosure should start exploring whether bankruptcy is an option now and plan ahead (and if you're in bankruptcy, you should consider speaking with your attorney about whatever options you may have). I know that no one wants to file bankruptcy. But if it comes down to whether you can actually keep your home, you would be foolish to not keep all of your options on the table, including the option to file for bankruptcy protection.

Full post as published by McLeod Law Offices on January 06, 2009 (boomark / email).