This New York Times article, looks at a new idea to help struggling homeowners with the problem of both foreclosure and being underwater on their mortgage. It argues that the Congress and Obama administration should help struggling homeowners by allowing them to pay principal by reducing the interest rate on a mortgage to 0% during the pendancy of a Chapter 13. This would in fact give the borrower the ability to reduce the principal balance of the mortgage during the pendancy of the five year plan and create equity in the property or reduce the amount that the person is underwater on their mortgage.

Presently, the bankruptcy code has a provision in it that prevents the modifcation of any of the terms of a debtor's principal residence. This provision 11 U.S.C. 1322 (2) prevents a borrower from lower their interest rate in a Chapter 13, reducing principal and interest payments, or modifying any other terms of the mortgage. In 2008, there was a bill that would have changed this provision in Congress, but the banks quickly lobbied for the demise of the bill. Sales of existing homes fell in July 3.3 percent, and this despite the fact that prices for homes are down 4.4%. An estimated 14.6 million borrowers are underwater on their home and more than half are significantly underwater on their home. Presently, there is a huge backlog of foreclosures in most states and there seems to be no end in the near future. Despite the amount of foreclosures and housing crisis Congress has done little or nothing to reform the bankruptcy code.

An experienced Chicago bankruptcy attorney at my office will go through your options if you are in foreclosure. Those options may include a Chapter 7 which discharges the liability on a mortgage or a Chapter 13 which repays mortgage arrears up to five years. In some circumstances, a second mortgage can be stripped off if there is not enough equity to support the lien. If you are experiencing financial difficulty call my office today at 312-489-8182 for free consultation to go through your options.

Marc Wagman

Attorney at Law