Under the current state of bankruptcy law, a debtor can't cram down the mortgage on the principal residence in a Chapter 13 Bankruptcy. However, a Principal Paydown (PPP) bill may soon pass thanks to the National Association of Consumer Bankruptcy Attorneys (NACBA). Thirty-two members of the California delegation in the U.S. House of Representatives sent a "call to action" to President Obama that read in relevant part:
"One promising possibility would be a temporary reduction in the interest rates of certain homeowners who file for Chapter 13 bankruptcy, so that the entirety of their monthly payments would go to paying down their principal balances for five years. Coordination with the bankruptcy process would make these reductions more likely to succeed than other types of loan modifications, while also limiting the program to those who truly need it and avoiding the administrative failures that have plagued many other initiatives. Such a plan could be implemented for mortgages held by Fannie Mae and Freddie Mac, as we believe that such a plan would be entirely consistent with FHFA's obligation to minimize taxpayer losses in the Enterprises. This plan could also be implemented as part of the nationwide settlement currently being negotiated by a group of state attorneys general."
The endorsement by the California delegation of the PPP signals a growing recognition among policymakers that Chapter 13 bankruptcy is an appropriate forum for addressing the foreclosure crisis. On Thursday, the Democrats on two House Committees -- Judiciary and Oversight and Government Reform - included mortgage modifications in bankruptcy court (such as the PPP) as an approach to fixing the housing market and the broader economy in their suggestions submitted to Congress' deficit reduction committee. And, in correspondence last month with Members of Congress, Edward DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA), said NACBA's PPP has "some attractive features" and indicated that he has instructed his legal staff to study it further.
The last attempt to get "cram down" legislation passed failed. This renewed attempt may give underwater homeowners a new hope.
The Law Offices of James V. Sansone is located in Santa Rosa, California and serves clients with their bankruptcy needs throughout the North Bay area of California, including Sonoma County, Mendocino County, Lake County, Santa Rosa, Napa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport and Kelseyville.
