Chapter 13: New and Improved
I saw something rare on the news recently: a story actually featuring good news. Even more unlikely, it was good economic news. I couldn’t believe my eyes.
According to the press, a bill designed to make Chapter 13 bankruptcy laws more debtor-friendly is picking up steam. Not that bankruptcy wasn’t good for debtors before—if you’ll recall, filing for Chapter 13 is the only guaranteed way to stop foreclosure—but laws passed in 2005 had tipped the scales in favor of banks, not debtors. This tips them back.
Known as the Helping Families Save Their Homes in Bankruptcy Act of 2009 (try to say that five times fast) the bill was introduced by Illinois Senator Dick Durbin as part of president-elect Obama’s stimulus plan. And on Thursday, it was endorsed by longtime opponent Citigroup—definitely a good indicator of future success, in my opinion.
As mentioned earlier, Chapter 13—sometimes called debt reorganization—is already a good deal. Here’s what you can expect when you file under current law—foreclosure is stopped, you get to keep your house and, since most non-mortgage debts are either reduced or eliminated (the “reorganization” part), your payments will be a heck of a lot more affordable. But there’s a catch. To get these benefits, you have to reaffirm your mortgage—you know, the same huge mortgage that got you into this mess to begin with!
Under the proposed changes, however, a bankruptcy judge has the authority to modify your mortgage, updating the terms and value. Meaning that if your house is now worth half what you paid for it, your mortgage payments will be cut approximately in half.
For hundreds of thousands of people, this could mean a light at the end of this dark tunnel of an economy. Not only will it keep homeowners in their houses, but less foreclosures in badly-hit neighborhoods will lead to higher property values—a boon for the housing industry, which could in turn buoy the country’s overall economic health.
As always, though, there are a couple of caveats. For instance, the new law as written now only applies to pre-existing loans and—maybe most significantly—might only be available to people who have sought a loan modification. In coming posts, we’ll keep you updated on how the pending changes could affect you and what you need to know about foreclosure and bankruptcy (P.S.—click here for information on how we can stop foreclosure). Looking for advice tailored to your individual needs? Contact us for a free one-on-one debt analysis.
If passed, it’s been said this bill could keep a half-million or more people in their homes. Wouldn’t you like to make sure you're one of the lucky ones?