H.B. 1106 attempts to limit the mortgages that may be ìcrammed downî or otherwise modified. It permits modifications only on loans that were originated before the billís enactment. A case may not be reopened to modify a mortgage. These are substantial (however, debtors are not prevented from filing a new case).
Several provisions are designed to discourage debtors that would file bankruptcy solely to modify their mortgage, but they may not be effective. Thirty days before filing, a debtor must contact the mortgage holder or servicer for a modification. The creditor must be provided with the same schedules and statement of financial affairs that would be filed in bankruptcy. While this would give the creditor some needed information to consider a modification, some issues arise immediately.
While the debtor is required to contact the lender 30 days before filing, it is not clear that the debtor must also provide the information within that thirty-day period. Consider the scenario where a debtor writes a letter requesting modification thirty days before filing, but does not provide the creditor with the required information until one day before filing. Is this a good faith issue that would result in a denial of confirmation? Even if the information is provided thirty days before filing, is this enough time for a creditor to consider a modification? Finally, because debtors must prepare their bankruptcy documents while seeking modification, doesnít this encourage bankruptcy filings? Moreover, debtors that are facing a foreclosure sale on their residence within thirty days after filing a bankruptcy are exempted from these requirements.
The Senate Bill would permit far more modifications at this point, but is expected to also place some limits on filing. We will advise you of any changes to the Senate Bill as they arise.
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