Allowing Bankruptcy Judges To Modify Home Loans Could Also Help The Credit Card Companies

25 Jan Allowing Bankruptcy Judges To Modify Home Loans Could Also Help The Credit Card Companies

The new legislation to allow Bankruptcy judges to modify home loans will not only help homeowners save their homes but often will increase the amount of money that credit card companies and other unsecured creditors receive in a Chapter 13 Bankruptcy.

A Chapter 13 bankruptcy is a structured repayment plan designed to allow a debtor to pay all or part of her debts and get a fresh start.  The first calculation is to determine how much money the debtor has available each month to make payments.  Once that amount is determined, a plan is prepared to divide those funds among the creditors, first paying priority debts (like child support), then secured debts (like home loans) and finally unsecured debts (like credit cards).  Thus, if you decrease the amount of money paid towards the home, you increase the available money to pay to the unsecured creditors.  This means more money for the credit card companies!

That’s exactly what the new legislation will do: help homeowners avoid foreclosure by decreasing the amount of their monthly mortgage payment.  With less of a house payment, there simply will be more money to pay other things, including the credit card bills.  

The credit card industry should be lobbying for the new law!

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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