Fri Apr 10 2009
All the recent stimulus and bailouts made absolutely no changes to the bankruptcy laws. Clients constantly ask me when the “Obama Plan” will help them file bankruptcy and, for instance, reduce their mortgage payment. Unfortunately, it will not, because the Obama plan, all 400+ pages of it – which I read – does not mention bankruptcy at all. The Homeowner Affordability and Stability Plan Executive Summary makes a vague reference that bankruptcy judges should be allowed to modify certain home loans when all other avenues fail and the borrower has no other options. But that was just it – a mere suggestion that Congress may want to consider this issue at some point in the future – far from being law.
We know that the President does not make laws – laws are passed by Congress in a multi-step process that includes both the House of Representatives and the Senate. Each step involves various hurdles and opposing interests that the politicians must try to appease. The Bankruptcy Code is a thick federal statute, specifically Title XI of the United States Code, that can only be modified by an act of Congress, and not the President. As of this writing, NO CHANGES TO THE BANKRUPTCY CODE HAVE BEEN MADE SINCE PRESIDENT OBAMA TOOK OFFICE.
When will the changes be made? Proposed changes are being heavily pushed by consumer-friendly entities like the National Association of Consumer Bankruptcy Attorneys (of which I am a member), and heavily opposed by the banking industry. A small but important victory for consumers came recently when the House of Representatives narrowly passed a bill titled H.R. 1106 — a proposed law that upon passage in the Senate and approval by the President would finally allow bankruptcy judges to “cram down” (modify) the principal amounts and other terms of home mortgages in Chapter 13 cases after certain requirements have been met. However, the passage of this proposed law in the House is just the beginning of a long and possibly losing battle. The Senate companion bill, known as S.61, appears to be dying, lacking the needed support to gather enough votes to pass. Senate leaders just this week indicated that they will be focusing their efforts on revamping regulatory rules leading to more Federal oversight of banking practices. The changes to the bankruptcy code are not on the immediate agenda and may not reach the Senate floor any time soon.
Where does that leave consumers? The current bankruptcy laws already provide various degrees of relief, including ways to stop or delay foreclosure (see my article The foreclosure that never was), ability to catch up on late mortgage payments, an opportunity to get rid of a second mortgage (see my article Goodbye Second Mortgage!), or the ability to walk away from a piece of real estate without owing any deficiencies to the banks.
The author of this article may be contacted at the Law Offices of D. Lev, PC.