What the Lenders Won’t Admit

Members of the mortgage industry are doing their best (or worst!) to stop a bankruptcy bill that could save millions of homes from foreclosure, but I’m optimistic that the odds are stacked against them.

All it takes is a look at the statistics to see how badly we need this new bill. Data released in November shows housing prices 18% lower than a year earlier. There were a whopping 81% more foreclosures in 2008 than in 2007. And consumer confidence just dropped to 37.7%--the lowest it’s been since 1967. Clearly, we’re in need of a change. And the Chapter 13 bill is just what the doctor ordered.

For the first time, it would give judges the right to change mortgage terms on a bankruptcy applicant’s loan—possibly lowering them to match the current value of their home. The timing couldn’t be better. As housing prices sink ever lower, a growing number of homeowners are left paying mortgages up to twice (or more!) the current value of their homes. What’s worse, many of them were talked into especially risky mortgages—often with no money down and adjustable interest rates that later reset much higher (Who convinced them to go for these mortgages? The same lenders who now oppose helping them out now!)

What lenders are too greedy to realize—or admit—is that the real estate market affects the entire economy, from construction to retail to the auto business. By stopping foreclosures, real estate values will finally be able to rise. Homeowners will have more equity and money in their pockets to buy cars, clothing and other goods. Employers will have less need to lay off employees. There will be a need for commercial construction again. Yes, it’s a bit of an oversimplification, but all of these things truly are connected.

Even President Obama has lent support to the Chapter 13 bill (although he recently asked that it be removed from the upcoming economic stimulus package and voted on separately, so as not to stall the much-needed stimulus bill).

Whatever the outcome, don’t forget that Chapter 13 bankruptcy is already an option—and your constitutional right. It’s the only guaranteed way to stop foreclosure. When you file for bankruptcy, a judge can grant you lower payments on non-mortgage debts, freeing up more money for your house payments. When the new laws are passed, they will only make the process even more effective, lowering your mortgage bill as well.

Find out more about the changes to Chapter 13 by ordering our free Financial Toolkit or visiting our bankruptcy page. Want to know how bankruptcy can help you personally? Sign up for a free one-on-one debt evaluation with one of our bankruptcy experts. Remember, if you lose your house, the lenders win. Don’t let them—instead, put up a fight. We’re on your side. And, together, we can save your home.

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