Monday, November 17, 2008

Durbin Introduces Bill to Allow Chapter 13 Bankrutpcy Modification of Mortgages on Principal Residences

A bill was introduced into the Senate today by Senator Richard Durbin (D-IL) entitled the "Homeowner Assistance and Taxpayer Protection Act." S.3690 The bill includes provisions that would allow owners of principal residential property to modify their mortgages in Chapter 13 bankruptcy. Presently, only mortgages that are secured not only by a Chapter 13 debtor's principal residence may be modified. The bill was referred to the Judiciary Committee. Senate and House leaders have reportedly made it clear that the issue remains a top priority. Although it is reported that the bill is not likely to pass this year, it is expected to come up early in the next Congress in the first quarter of 2009.

Title I, Section 103 of the bill would amend section 1322 of the Bankruptcy Code to allow a Chapter 13 plan to modify, after passing a budgetary means test, a secured claim secured by the debtor's principal residence. The modification would allow one to reduce the mortgage claim down to the value of the real estate collateral, change the interest rate, and increase the term for up to 40 years. A Chapter 13 plan would also be able to provide for the waiver of any prepayment penalty.
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