Consumer and civil rights advocates are fighting for legislation to help foreclosure victims stop foreclosure and avoid eviction with the help of the bankruptcy courts. This bill is supported by many consumer advocacy groups, such as the Center for American Progress, AARP, NAACP, and the Service Employees International Union, just to name a few.
The new legislation appears to allow bankruptcy courts to reduce the debt owed on a homeowners primary mortgage. This could help balance the 8% decline in the housing market in the last year. Currently a Chapter 13 bankruptcy can be used to stop or delay the foreclosure process, but the courts have never had the ability to eliminate any portion of the debt owed on a mortgage. A Chapter 13 bankruptcy helps the victim to re-establish a payment plan, where a Chapter 7 eliminates debt altogether; although, currently, a Chapter 7 bankruptcy can not eliminate the debt of a mortgage. After being turned down by the Senate, these hopeful groups have petitioned the House and are very optimistic of a successful outcome.
Parties against the new legislation (banks and mortgage companies) claim these changes would only raise mortgage rates for everyone across the country and are lobbying against the changes with the slogan “Now is NOT the time to change the bankruptcy law and make things worse for consumers,”. Many consumers are feeling the pain of lower home values and higher interest rates and with 20,000 foreclosure a week, many people would welcome this type of change.
As the housing market continues to worsen, foreclosures will grow and more and more families will need help. But should the government be obligated to provide this help and doing it through the bankruptcy courts the right choice? We’ll keep you updated and please let us know your thoughts or ideas on this matter .