By Mark Huffman
ConsumerAffairs.com
January 7, 2009
Congressional Democrats have wasted no time in advancing legislation to change bankruptcy rules, with the aim of reducing home foreclosures. Under the proposal, judges could order lenders to forgive some mortgage debt.
House Judiciary Committee Chairman John Conyers, Jr. (D-MI), Judiciary Subcommittee Chairs Linda Sanchez (D-CA) and Jerrold Nadler (D-NY), and Committee Member Bill Delahunt (D-MA) have introduced the Helping Families Save Their Homes in Bankruptcy Act of 2009.
Identical legislation was introduced in the Senate by Senator Richard Durbin (D-IL).
The measure would change the law to give homeowners filing for bankruptcy the opportunity to restructure their loans so that they can save their homes from foreclosure. Specifically, the bill would empower bankruptcy judges to modify mortgage terms to help homeowners stay in their homes.
"The economic turmoil we are experiencing is a direct result of the burst housing bubble," said Conyers. "Foreclosure is now expected to claim more than 8 million homes by 2012 — 16 percent of all mortgages in America. To set our economy on the path to recovery, we need to strengthen our communities by taking steps to stabilize the home mortgage market. Giving homeowners the chance to restructure their loans will help more families avoid foreclosure."
The lawmakers argue that the effect of the anticipated stimulus package would be greatly diminished unless foreclosures can be reduced. They say it would help break the continuing cycle of foreclosure that threatens cities and neighborhoods across the country.
"After spending $700 billion to keep the financial markets afloat, our bill will finally provide the help homeowners need and won't cost the taxpayers a dime," Conyers said.
"The problems we are seeing in the economy started with the mortgage meltdown in the subprime market," said Sanchez. "To make the economy bloom again, we need to plant the seeds of recovery in the housing market. As the law currently stands, judges can restructure debt on second homes, vacation homes — even yachts and private jets, but not on a debtor's first home. I think that is fundamentally unfair. There is no reason why average Americans should not have the same legal protection to save their family homes."
Nadler says that under current law, home mortgages are virtually the only debts that cannot be modified in bankruptcy. Their proposal, he said, would give homeowners the same advantages corporations have when trying to restructure their debt. Voluntary efforts to modify loans, he says, have not produced the desired results.
