November 24, 2017

Congress Considers Bill that Would Allow Homeowners to Modify Mortgage Terms in Chapter 13

Jonathan Alper, writing in the Florida Bankruptcy Law blog, reports that Democratic congressmen have introduced House Bill 7307 which would empower bankruptcy judges to reduce the balances of “upside down” mortgages to the value of the property and to reduce mortgage interest rates in some cases.

So called “cram down” authority currently allows bankruptcy judges to cram down car loans, furniture debt and other secured loans.  The BAPCPA changes to the bankruptcy law put limits on cram downs of car loans; it will be interesting to see if Congress expands cram downs to mortgage loans will they also change the rule that apply to automobile debt.

Opponents to this expansion of cram down authority contend that by giving bankruptcy judges the power to change mortgage loan terms, the mortgage security market will be destablilized and that the cost and availability of mortgages – especially to credit challenged homeowners – will tighten because of the uncertainty that such potential modifications will bring to the market.

Attorney Alper offers his own opinion – that mortgage cram down be approved for a set period of time in order to stabilize the housing market, then to revert back to current rules.

I’m not so sure that Congress has the discipline or the political will to write laws that might help restore order to our financial markets battered by a once-in-a-lifetime crisis.  I think that the tempation will be too great for Congress to regularly tinker with the operation of the free market, which may provide short term relief, but will result in long term damage to those markets.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.

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