The much publicized legislation that would have allowed bankruptcy judges to modify mortgage debts in a Chapter 13 case was passed in the U.S. House of Representatives but failed in the U.S. Senate on May 23, 2009. Debts secured by a primary residence remain the only secured debts that cannot be modified in bankruptcy. The legislation would have allowed bankruptcy judges to modify home mortgages to cram down a mortgage debt to the true value of the home, to fix the rate on an adjustable rate mortgage, or to extend the length of a mortgage loan.
Without this legislation, homeowners will have to continue to deal directly with their mortgage lender for potential loss mitigation or loan modification. Lenders are overwhelmed with the amount of requests for relief in this time of increasing unemployment and declining home values.
My clients are reporting frustration with the untimely response or lack of response from their mortgage lenders with a request for modification. Unsophisticated consumers are finding it nearly impossible to navigate the loan modification process. Many of my clients were awaiting notice about a loan modification when they were forced to file Chapter 13 bankruptcy to save their home on the eve of foreclosure. Chapter 13 remains a viable option for homeowners who got behind on their mortgage payments for whatever reason, but now have a stabilized financial situation. Chapter 13 allows homeowners to cure the mortgage arrearage over three to five years while maintaining regular mortgage payments to their lender.
