On March 5th, the House of Representatives gave a thumbs up to upsidedown homeownes by approving the Bankruptcy reform provision of President Obama’s Real Estate Recovery.  The provision would allow Chapter 13 Bankruptcy judges to “cram-down” loans to affordbale levels by lengthening terms, cutting interest rates and reducing mortgage balances of bankrupt homeowners. It also would permanently increase the FDIC’s coverage of bank deposits to $250,000. The measure passed the House 234-191 and now goes to the Senate.

Needless to say, the bankruptcy provision is opposed by the banking industry and most Republicans, who said it would further destabilize home prices. This makes passage by the Senate more uncertain. Everyone seems to agree that the bill is not perfect although there is a general concensus that something must be done to stem the wave of foreclosures.  Senate consideration will start next week and there is likely to be lots of pressure for revisions.  The bill passed the House narrowly and along party lines. Passage in the Senate will be more difficult.  Not mentioned in the many articles circulating will be just how the Bankruptcy Courts would handle the infux of potentially millions of new Bankruptcy filings. Certainly more staff would be needed and maybe even some expedited screeing process. Right now we’re at the big picture stage but, as with everything, “the devil is in the details”.

Stay tuned for further information. If you have specific questions about your liability, foreclosure, or any legal issue, feel free to contact me at sjbeede@bpelaw.com