The new Mortgage Modification Bill will allow Bankruptcy judges to modify house payments in a Chapter 13 bankruptcy. Will that be enough to save a significant portion of the millions of Americans facing foreclosure?
A recent article from Chip Parker on the Bankruptcy Law Network suggests that it won’t be. He points out that many people can’t afford a Chapter 13 Bankruptcy which calls for monthly payments and requires an on-going income. Further, a chapter 13 plan is cumbersome, hard to maintain and to get permanent mortgage relief a homeowner must stay in the plan for five years and make all of the required payments. That’s not an easy thing to do, and the vast majority of people who file chapter 13s never make it through.
The answer he suggests is to extend the relief to Chapter 7 bankruptcies. That would reach more people, and be a more permanent solution to the problem.
There is no doubt that the current legislation is a step in the right direction. It will save some homes, and create a mechanism for avoiding foreclosure. But, maybe it is, as Chip suggests, only a baby step.
