Overview Of The Helping Families Save Their Homes in Bankruptcy Act of 2009.

Earlier this year, both houses of the U.S. Congress proposed amendments to the Bankruptcy Code, which, if enacted, will drastically alter the way in which home mortgages are dealt with in Chapter 13 bankruptcy proceedings.

The Bills, cited as HR 200 and S.61 and together known as the “Helping Families Save Their Homes in Bankruptcy Act of 2009” include amendments to: (1) ease the eligibility requirements to seek Chapter 13 relief, (2) potentially give borrowers the right to prosecute certain consumer lending violation claims within the bankruptcy case, and (3) to prohibit the type and amount of fees that may be assessed by a lender against a borrower in bankruptcy.  However, the section of both Bills receiving the most publicity to date centers around the borrower’s ability under the new law to cram down the balance owing, alter the interest rate and extend the repayment term.

Specifically, Congress is seeking to add a new section, captioned 11 U.S.C. 1322 (b)(11) which provides that a borrower, who receives a notice from his lender that a foreclosure may be commenced upon his principal residence, may then modify the terms and conditions of the loan to:

1. Reduce the amount of the secured claim to an amount equal to the current value of the home, with the remaining balance treated as unsecured and discharged upon completion of the plan;
2. Extend the repayment term for a period of up to 40 years (minus the period for which the loan has been outstanding); and
3. Adjust the interest rate upon the Note to a fixed annual rate commensurate with the published Federal Reserve rate for conventional mortgages, plus a reasonable premium added for risk; or
4. In the case of an adjustable rate mortgage, a borrower also has the option of prohibiting, reducing or delaying a rate adjustment during the life of the Chapter 13 plan.

In the coming weeks and months, the Bankruptcy staff at Weltman, Weinberg and Reis will provide you with a more detailed analysis of the specific provisions of the Bills to help you better understand how this potential new law may affect your business and how you can prepare to deal with its implementation.

Be Sociable, Share!

•