In February, President Obama’s Homeowners Affordability and Stability Plan proposed altering the Bankruptcy Rules to allow Chapter 13 Judges to reduce (”cram-down”) the amount of debt owed as part of a repayment plan. By March 5th, the House of Representatives passed a Bill giving Ch 13BK Judges the authority to modify loans to “affordable” 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 went to the Senate (SB 61) where passage was expected by Easter.

Easter has now come and gone and passage is no closer. Lobbying from the banking industry has met a receptive audience in the Senate and the Bill’s sponsor, Richard Durbin, has backed off from his early strong support. Current negotiations propose limiting such authority to “subprime” loans but even that may go nowhere since Durbin has been unable to gather enough support to pass any such bill. Senator Charles Schumer suggested last week that he might seek to “tack-on” this bill to someother pending legislation to try to get a faster vote. However, many think that even if this watered down bill got through the Senate, the House would then reject it.

As it stands now, action is not likely to occur until after Memorial Day. Public comment remains split between consumer advocates who want relief now and those who say the correction must sun its course to fix the economy. Strong voices are being heard on both sides but not strong enough to put Bankruptcy cram down relief into law.

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.  Need help Coping with an Upside Down Loan? Checkout Steve’s audio-seminar and e-book at: http://www.stevebeede.com/copingwithanupsidedownmortgage/