Thursday, May 5, 2011

Chapter 13 Bankruptcy and a Judges Power to Modify a Home Loan

Given the state of the housing market and home loan industry over the past few years, it's no wonder why some many people are facing foreclosure and looking to bankruptcy for help.

Historically, bankruptcy judges had the power to "cram down", or reduce the principle on all types of property EXCEPT a home.

In 2009, the Obama administration tried to pass legislation granting Judges the power to "cram down" home loans. This would effectively mean a bankruptcy judge could modify the terms of a mortgage agreement, both the payments and the principle amount.

This legislation did not pass, but a new round of legislation probably will.

What Does this Mean for Homeowners?
This means a homeowner that has been unable to attain a mortgage loan modification may be able to FORCE one by filing a chapter 13 bankruptcy and letting the Bankruptcy Judge determine what the mortgage terms should be.

Even though the original legislation did not pass, Judges in many jurisdictions were using other laws to allow them to modify the mortgages of chapter 13 bankruptcy petitioners, and the practice has become more widespread. Now, it looks like it will become part of the bankruptcy code.

This will provide homeowners with help from the US Bankruptcy Court to get their home loans modified so they can afford the terms, as well as removing a significant amount of their debts, secured and unsecured.

This is great news for homeowners and another win for consumers in the battle of the Credit Industry vs. Consumers.

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