That’s the title of AARP’s story explaining why changes to bankruptcy law are necessary before bankruptcy can help a broader group of homeowners keep their homes. Presently, bankruptcy law expressly forbids Chapter 13 plans from changing the terms of a loan secured by a borrower’s principal residence.
That means that Chapter 13 can provide protection from foreclosure while the debtor makes payments to cure any default. But the Chapter 13 plan can’t eliminate an adjustable rate provision, lower the principal to match the reduced value of the property, or extend the term of the loan. Often, without those kinds of changes, even elimination of all other debt isn’t enough to save the house.
The biggest change that present law can make is to strip off junior liens if the liens senior to that lien equal or exceed the value of the house.
AARP is one of a growing list of supporters of enabling mortgage modification. The American Bankers Association contines to oppose change. I have to ask, why would the opinion of the very people who brought us the mortgage mess carry any weight at this point?