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Anticipated Changes To The Federal Bankruptcy Laws Maybe Pending
By
Jeff Kaller
House Democratic
members from North Carolina and California,
respectively, recently propose legislation
that would repeal the mortgage exception in
the federal bankruptcy code.
This legislation would allow a judge to
change the priority value of primary
residence mortgages or alter interest rates
on the property. In the current economic
climate, industry insiders are predicting
over half a million foreclosures in the next
24 months, prompting serious discussions
around this issue.
What is Bankruptcy?
There are two main types of Bankruptcy
options for the consumer. Chapter 7
Bankruptcy is often referred to as a
"liquidation bankruptcy." In Chapter 7, all
of the debtor's assets, other than those
specifically exempt from liquidation, are
turned over to a bankruptcy trustee for
sale.
Chapter 7 Bankruptcy is used to eliminate,
or discharge primarily unsecured debts such
as credit cards or medical bills. Chapter 7
does not eliminate secured debts, such as
vehicles. Chapter 7 will not save houses
from foreclosure or a car from repossession
if payments are delinquent.
Chapter 13 Bankruptcy, most commonly used to
halt a foreclosure, results in a plan to
repay all or part of a debt. Many times a
debtor is allowed to pay credit cards and
medical bills at pennies on the dollar.
Chapter 13 is used most often to save a
house from a foreclosure sale or vehicle
from repossession. Chapter 13 is also useful
to eliminate some IRS debt and to establish
an affordable plan to pay IRS debt that
cannot be eliminated. Chapter 13 Bankruptcy
is available to debtors with regular income.
The bill before the house, entitled the
Emergency Home Ownership and Mortgage Equity
Protection Act, would give a bankruptcy
judge the option of restructuring the amount
an in debt person owes on the mortgage on a
primary residence so that only the portion
of the loan principal that doesn't exceed
the market value of the property would
receive high priority.
In other words, "the portion of the mortgage
principal that exceeds the market value of
the home would be treated as an unsecured
liability, as in Chapter 7, and not given
preferential treatment, meaning that the
amount could be discharged in a bankruptcy
proceeding. Traditionally mortgage payments
on primary residences, like tax liabilities,
have been sacred untouchable territory in
bankruptcy negotiations, not allowed to be
tampered with by the courts.
Conclusion
Are you one
of the many that suffer from insurmountable
debt and wonder if bankruptcy is an option?
Give us a call at (203) 924-6700 or
contact us.
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