New Bankruptcy Bill One Step Closer: Help May Be on the Way

Democrats in the House of Representatives that are pushing legislation to reform the Bankruptcy laws won support from a Republican yesterday. Ohio Republican Rep. Steve Chabot signed onto the bankruptcy bill being considered by the House Judiciary Committee. The bankruptcy bill would allow Bankruptcy Judges more flexibility to change the terms of some types of mortgages on primary residences.

Although this bill has been called the most radical approach to the subprime disaster, it is the one that makes the most sense in my opinion. Naturally, it is being opposed by the mortgage industry. Let’s face it, last weeks freeze on interest rates was a joke. It was another attempt by our leaders to pull the wool over our eyes. Homeowners and everyone associated with this disaster saw the interest rate freeze for what it was; another dashing of hopes and a complete waste of time for millions of homeowners.

To fight the new bankruptcy bill, the mortgage industry is using the same approach as before: the sky is falling, the sky is falling, and interest rates will go up for everyone. But they are ignoring the facts; people are surrendering their homes in record numbers because they cannot afford them. This bill, if passed in present form, would not bring an end to the subprime disaster, that will come later, and it won’t be pretty. This bill will help many individuals save their homes, keep a roof over their families heads and allow many individuals who are drowning in debt the opportunity to take control back over their financial lives. This does not bode well for the credit card companies, car finance companies and the mortgage companies. (It will be a great time of year if you are a lobbyist for the financial services industry)

As it stands right now, the bankruptcy bill would allow qualified homeowners to re-value their homes in the bankruptcy courts. A bankruptcy judge would be able to determine the proper value of the home. The value used would be today’s value. The consumer would be provided a forum to examine the fees, interest rates, and costs associated with mortgages. Of course, the bill has limitations. The legislation would apply to those individuals who borrowed money from January 2000 up to the date of the passage of the legislation and it would apply to exotic mortgages like interest only ARMs.

We will have to wait and see how many changes and revisions this legislation will go through. My only hope is that Congress moves a little faster now that a Republican has decided to sign onto the bill. This is, in my opinion, one of the most important pieces of legislation being considered by Congress right now.