The proposed bankruptcy amendment will even help those who don’t want to file

20 Feb The proposed bankruptcy amendment will even help those who don’t want to file

Many of my foreclosure defense clients would be fine financially if it were not for their foreclosure.  They are current on car payments and credit card bills.  But for their awful mortgage situation, they would never consider filing a bankruptcy.  The good news is that, if Congress passes the Helping Families Save Their Homes in Bankruptcy Act of 2009, these homeowners could actually rework their mortgage without filing bankruptcy.

Truth be told, a foreclosure defense litigator has only one goal: shift leverage away from the mortgage company to the homeowner.  Everything that I do in a foreclosure case is focused on reaching that goal.  Only after a sufficient amount of leverage is shifted will the lender negotiate a settlement in good faith.  This is a process that does not happen overnight.

Mortgage companies realize that a properly defended foreclosure can tie up the home in court for a long time.  During that entire litigation process, the mortgage company is receiving no mortgage payments.  Despite that fact, mortgage companies refuse to negotiate because they are armed with the knowledge that today’s Chapter 13 laws are inadequate to save the homeowner who has fallen behind in payments.

A tremendous shift in leverage will occur with the enactment of the proposed bankruptcy changes because there will be less down-side risk to the homeowner.   After years of protracted litigation, the homeowner would ultimately have the option of filing a Chapter 13 bankruptcy to save the home.  Mortgage companies recognize that it is not a matter of if the homeowner will seek bankruptcy protection but when.

Theoretically, a homeowner could spend years fighting his mortgage company in state court, only to ultimately face a foreclosure sale, but he could just file a Chapter 13 and re-amortize the fair market value of the home over 35 years or so at a low fixed rate of interest.  Therefore, if the amendment becomes law, the owner of the loan will be motivated to offer the same modification terms early in the foreclosure case to save money and restart the flow of monthly payments as soon as possible.

In exchange for saving the bank thousands in attorney fees, the homeowner will get a fair modification deal without having to file bankruptcy.

So, the proposed changes to the bankruptcy laws will even help homeowners who do not otherwise need to file bankruptcy.

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Chip Parker is the managing partner of Parker & DuFresne, P.A., where he represents Northeast Florida businesses and consumers facing bankruptcy, and homeowners facing foreclosure. His firm files more homeowners in the Mortgage Modification Mediation Program than any other law firm in Northeast Florida. Parker is the recipient of Jacksonville Area Legal Aid's prestigious Award for Outstanding Pro Bono Service. Mr. Parker is an active member of the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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