Can You Wait For The New Bankruptcy Bill?
December 3, 2008
© Seagrave
Before Thanksgiving, a new bankruptcy bill was introduced to the Senate. Its purpose is to help homeowners save their homes from foreclosure during bankruptcy. With an increasing number of people facing unpaid bills and debt collection, legislators are taking action.
The proposed bill must be discussed, reviewed and revised before it even goes to debate. With a new President, many feel this legislation will be passed as soon as the new year. Those facing debt collection abuse during the holiday season are looking to this legislation for much-needed relief.
The intention of the proposed bill is to, “help struggling families stay in their homes and to ensure that taxpayers are protected when the Secretary of Treasury purchases equity shares in financial institutions.”
For a long time, Supreme Court decisions terminated the ability to modify the first mortgage on a residence. In a Chapter 13 bankruptcy proceeding, first mortgages cannot be removed or modified. Only a second mortgage, or junior trust deed, can be removed in bankruptcy.
Only one exception exists under current law. People who own rental or investment properties can modify their first mortgages as well as eliminate second mortgages during bankruptcy. This offers little relief for struggling homeowners.
The new bill would give homeowners the ability to eliminate second mortgages on a residence entirely. Homeowners will also be able to reduce the principal balance of their first mortgage to reflect the fair market value of the residence. This is financial relief for those paying overinflated mortgages from the housing bubble.
Debtors would need to pass an income and expense test to qualify. The mortgage loan would be reduced to the fair market value of the property with payments spread over a 40-year period. A fixed interest rate would be charged on the mortgage.
While reforms are coming to help homeowners, they may still be several months away. If debt collection and collection abuse is dragging you down today, talk to a professional about your problems. A bankruptcy attorney will present options for greater hope and financial security in the future.
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