Mortgage Bankruptcy Bill Passed by Congress

congress-house1After almost two years, it now looks like bankruptcy judges will soon be allowed to offer loan modifications through bankruptcy court as a last resort for a homeowner to stop foreclosure.

The process of claiming bankruptcy on your mortgage has been dubbed “cramdown.”

Under current BK laws, bankruptcy courts may reduce many forms of debt for struggling borrowers. Including but not limited to, boats, cars, vacation homes or family farms. But until now, not a primary residence.

The bankruptcy measure was approved by a 234-191 vote on Thursday in the U.S. House of Representatives.

It is reported that the new mortgage bankruptcy law will protect homeowners who cannot get help from their mortgage servicers by giving judges legal power to force the bank to either cut the interest rate on a home mortgage, the principle balance or all the above on a borrower’s primary residence.

This will take the important decision of to foreclose or not to foreclose out of the mortgage servicers hands in some cases and allow bankruptcy judges to have the 100% discretion to decide what is affordable long term for the homeowner. Meaning a long-term affordable loan modification.

A qualified loan modification will most likely will have to meet the standards set forth in Obama’s new Home Affordable Loan Modification Program that was announced on March 4 as part of his new housing rescue plan. The plan calls for lenders to cut a borrower’s monthly payment to as an affordable 31 percent of gross income by first reducing the interest rate on their mortgage and then possibly lengthening the repayment terms to make the loan payments even easier for the struggling borrower.

Homeowners wishing to take advantage of the new bankruptcy bill will have to comply with the provisions set forth in order to qualify. This would include the reimbursement to your lender for a portion of losses if the property is sold before the debtor completes a five-year bankruptcy repayment plan.

Chapter 13 of the bankruptcy code allows individuals with regular income to pay all or part of their debts without losing their homes to foreclosure. Chapter 13 of the bankruptcy code allows individuals with regular income to pay all or part of their debts without losing their homes to foreclosure.

The new bill will definitely result in more Chapter 13 bankruptcy filings by struggling homeowners. It is reported that at least 1 million borrowers will to benefit from the bill.

From Bloomberg:

“When it comes to housing, today is another example of why taxpayers are fed up with the way Washington works,” he said. “The American people are sick and tired of Washington forcing taxpayers to pay for those who have been irresponsible.”

But Michael Calhoun, president of the Center for Responsible Lending, a homeowner advocacy group, praised the House’s passage of the bill.

“Hundreds of thousands of families have lost their homes unnecessarily and tens of millions of neighboring families havewatched the value of their homes plummet. We urge the Senate to act quickly to approve this bill and put it on President Obama’s desk for his signature,” Calhoun said.

‘Not Perfect’

“This bill’s not perfect, but the process has worked better than anyone expected,” Representative Ellen Tauscher, a California Democrat and chairwoman of the New Democrat Coalition, said on the House floor. “Over the last couple of weeks we’ve worked together to make improvements to make sure bankruptcy is an option of last resort.”

The Senate may vote on a companion bill as early as next week, said Jim Manley, a spokesman for Majority Leader Harry Reid of Nevada.

The U.S. recession cut residential property values by $2.4 trillion, to $19.1 trillion, in 2008, according to estimates released this week by First American CoreLogic, a Santa Ana, California-based seller of mortgage and economic data.

House Republican Leader John Boehner of Ohio said the cram- down legislation was “disingenuously” titled the “Helping Families Save their Homes Act.”

“The measure forces those who have acted responsibly to subsidize scam artists, speculators and those who knowingly made bad decisions,” Boehner said in an e-mailed statement.

Read more from Bloomberg

Posted in Bankruptcy News | 23 Comments

23 Responses to “Mortgage Bankruptcy Bill Passed by Congress”

  1. teo says:

    is this laws is going to be effective when, in arizona we having lots of foreclosure and last thing read was in congrees.

    Helping Families Save Their Homes in Bankruptcy Act of 2009
    S. 61 is consistent with the goal of offering assistance to homeowners making a good-faith effort to stay current on their mortgage payments. Judicial modification is a last resort, no-cost option to foreclosure that may keep as many as 1.8 million FAMILIES their homes, according to Credit Suisse. Granting bankruptcy judges this authority gives home mortgages on primary residences the same treatment as vacations homes, yachts or investment properties owned by wealthier borrowers. Why should those facing financial crises, whose homes are their most valued asset, be denied relief given to others?
    S. 61 will help honest, hard working homeowners who may have been lured into predatory loans, suffered economic hardships, or who are overwhelmed by medical expenses, save their homes from foreclosure. Keeping people in their homes has the added benefit of helping to stabilize devastated neighborhoods and will give our economy a much need boost.
    Please support S. 61 and oppose efforts to weaken it. Thank you

  3. Jon Linton says:

    Thankyou very much. The information you have provided, gives me hope that we may be able to keep our home. Thanks again many times over.

  4. Wilbur P. Watson says:

    I am a disdabled teacher receiving a fixed income. My eleven year old son is handicapped, does not talk or walk. My spouse is ill. Medical bills have forced our home balance up and the interest high. We hired the Loan Modification Team out of Virginia to help us; that did not occur. We are many payments behind with Countrywide that I thought was sold to Bank of America. Countrywide has been strictly unwilling to help us. They consider help as suspension of payments for a short period of time and then adding all the interest on the back of the loan. This does not help us, only puts us further in the hole.
    We are afraid to lose the only thing we have, our home. We want to stay in our home. It is handicapped equipped. We do not know where to turn or what to do. We need help.
    I am worried about our Congress; it never helps the common, main street people only the rich and powerful. Will the new administration change this trend?

    Wilbur P. Watson

  5. J says:

    By helping the homeowners of America you are helping everyone. If my home payments are affordable, I spend money at stores for paint, grass seed, wood, drywall etc. If I am comfortable in my payment I save money in the bank, I spend on clothes, and eat out once in a while.
    The work I once depended on is in a state of evolution, less money, less employees,(me), and for shorter duration. I work in the entertainment field and it is changing.
    By helping homeowners keep their homes we help everyone. That seems like a good deal.

  6. Sharon Clark says:

    Please pass this bill. As it now stands due to the foreclosures in our neighborhood, four houses that are on the market on the same street (not just the neighborhood) with the same square footage are being listed for $219,000 LESS than what I owe on the loan AND I put a hefty down payment.

    Many of my neighbors were business owners who, because of the economy, had to layoff and or shut down their businesses and take lesser paying jobs. PLEASE pass this bill QUICKLY!!!!! It is affecting everyone and no one will be able to refinance to lower paying mortgages if the decline in homevalues keeps going down. POA and HOA fees will have to climb to make up for foreclosures sitting in their subdivisions which will make living in these neighborhoods even more undesirable. Meanwhile, the banks are willing to sell these foreclosed homes to investors for wholesale prices such as 40 to 50 cents on the dollar amount owed……but refuse to work with the homeowners who have paid them interest for years and helped them make their money.

    The problem is I’ve been told the banks get government money for what they’ve lost on their investment??????? However, if I lose money on the stockmarket or have it stolen from me….I get no such aid for my own losses.

  7. Sharon Clark says:

    Is there any lawyers out there who are willing to do a class action lawsuit against these banks who have created the downward spiral by forcing foreclosure instead of modification and are now stalling S. 61 so that they can continue to profit by getting taxpayer money to help make up their losses?

  8. Beth Gill says:

    This bill NEEDS to be passed NOW! It is a crying shame that the government will allow millions of homes to foreclose and remain empty when there are so many homeless people and families living on the street or in cars or tents. The passing of this bill would allow homeowners the opportunity to remain in their homes while paying a more reasonable monthly payment and I will be shocked if the Senate sits on this for very much longer. The American people should not be punished for the mistakes of the previous Administration! And by that statement, I am not referring to those homeowners who were deliberately irresponsible and put themselves in this position. The Senate needs to step it up and do the right thing — PASS THIS BILL!! We cannot afford to wait any longer!

  9. margaret says:

    so glad this bill passed now i have hope we can keep our home thank god.

  10. margaret says:

    i am so glad this bill passed ,now we have hope that we can keep our home we worked so hard to get thank you!

  11. rick says:

    will the senete pass this bill, is it dead or will it happen

  12. Andy Rughani says:

    Nothwithstanding the passed of this bill in congress and imminent passage in the senate Carolina First Bank that owns Mercantile Bank is still actively seeking to have their motion heard to set a foreclosure sale date on my home and the draw down of a supsedeas cash bond of $50,000 I put into the court registry. Banks used to say Federal Banking Regulators are forcing them to put loans into default and foreclose on homes. Senator Bill Nelson and Senator Mel Martinez you need to vote to pass this Bill so President Obama can sign it into law.

  13. Charlene Wallace says:

    we need free assistance. Not one that costs. It is to hard.

  14. Tim says:

    Being in CA the reality that most of the leaders of this country are failing to address is the fact that these lona mods that are out there right now do not address the value issue. These banks are getting billions of our taxe dollars but yet are unwilling to reduce our principle loan amounts to meet the current values of our homes.
    I don’t really even care about my payment so much as I’m upside down on my house over 200K. How long would it take for my home value to get back to even again…5, 7 years!
    My home is now a liability…not an asset until they can pass a bill like S.61 and allow the BK judges to get these loans back down to the values of our homes.

  15. Anonymous says:


  16. Tonya says:

    I reside in south Florida. My home is now worth half of what I purchased it for three years ago. Congress have forgotten about the average American and have focused all odf their attention on the Multi Billion dollar companies.
    Has the bill been passes or not. It would surely help me remain in my home.

  17. Kim says:

    We have been trying to get our loan modified for months and got bad advice, we worked really hard to get we we got and have been self employed for over 20 years. We refinanced in 2007 and thought no problem we will pay down our credit card debt and now we have a mortgae over 200k more than original we put a lot of money down on our house we do not want to lose it but I am just asking for some help even for the next 24 months until economy gets up and moving again. What is the senate doing why are the banks stalling everyone this has been a nightmare for my husband and I. O bam said he was going to help Main Street well I havent seen any help???

  18. Cynthia C says:

    I would like to try the Mortage Bankruptcy. I am here in Fresno Ca facing 10days before the Trustee Sale on May4th. Can you file for Morage Bankruptcy 2-3days of the trustee sales date. I do not want to loose my home but evertyime I go thru modification they always ask me for more $$$ at the end. I can’t find anywhere in the net the cost of the Mortage Bankupycy. This is my final attempt to save my home. Thank-you

  19. TA says:

    Pass this BILL now. Banks/Lenders got us into this problem and will not work with borrowers until this bk law is totally passed. They pretend as if they’ll help. Banks are not helping to keep hard working people in their homes. Sometimes we gotta fight back and fight fire with fire

  20. Paul T III says:

    I live in East Palo Alto, CA, you know, one of the most underserved cities in California. Bordering my town is Palo Alto, you know, one of the richest cities in the country.

    The local paper out here recently ran an editorial that placed unfounded guilt on homeowners in Menlo Park facing foreclosure. The paper, the Palo Daily Post, said that homeowners who “lived beyond their means” should not be rewarded. Unfortunately, the paper made no mention of how thee homeowners lived beyond their means.

    My point: even supposed guardians of reporting fair and accurate news to the public have jumped on the blame-the-homeowner bandwagon. I’ve sent out a response editorial to the paper, among other papers, and, to no surprise, have been ignored — silenced.

    It is a shame the loudspeakers of society talk about fairness and equity, when in fact it is only biased and self-interested humans calling the shots, saying what can and cannot be shown to the public.

    For the record, my dad is facing foreclosure and bankruptcy and I am doing my damn best to help him through this tragic moment. I wish some more people in power had friends and family in similar positions. Help would have arrived long ago.

    Honk if you Support S. 61. HONK! HONK!

  21. Karen says:

    I have been trying for 6 1/2 months to get a loan mod and Wells fargo keeps putting me off. I got divorced & then my well went dry (at the same time)right when the housing market was at it highest. My X made out like a bandit since the value is half of what it was when we divorced. Now my mortgage is getting ready to double in payment size and unless the bank gives me a loan mod (incl reducing the value) I will have to walk away from my home…

  22. kateb says:


  23. jim Kira says:

    This law has saved our house. My husband is 54 has been unemployed for a year and a half. He was not responsible for the economic colaps of this country. He had a 8.5 credit rating. Has never bounced a check in his life. always paid his bills on time. No one is going to hire a 54 year old when there are 200 20 year old standing in line willing to work harder for less. We are not slackers. We have mailed out hundareds of resumes. The banks wnat you to go into forclosure so they can buy your home for less than half what is owed. Then they write off the rest of the loan and resell at a profit. They already got there money and now they are taking your home. You are just a loan number. No one cares. Something had to be done. And they did it. Something for the American people. ThANK YOU MR. OBAMA