Why not allow mortgage modifications in Chapter 7?

18 Jan Why not allow mortgage modifications in Chapter 7?

2012 Update: Modification of mortgages in bankruptcy hasn’t been passed into law, but we haven’t given up hope yet. There are many reasons to continue to pull for this change and if you her that it is being considered again, please contact your Congressman or Senator and encourage their support.


All of us here at Bankruptcy Law Network file consumer bankruptcies, and we are very excited by the prospect that a change in the law couldallow the modification of mortgages in Chapter 13. However, our excitement is fueled by the fact that it is the first real piece of legislation to help the middle class since the banks purchased passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

As has been discussed ad nauseum by my colleagues and I on this and other blogs, solving the housing crisis is undeniably the lynchpin to economic recovery. While we have been saying it longer than just about anyone, who disagrees at this point? So, let fix this problem once and for all.

Chapter 13 personal reorganization bankruptcy is really an inefficient tool to modify mortgages when you compare it to the simplicity of Chapter 7 liquidation bankruptcy. It costs debtors more money because their lawyers are forced to spend triple the amount of time and resources to successfully complete the process.

Additionally, Chapter 13 trustee’s require an administrative fee (usually as high as 10%) tacked on to the plan payments. Even though it appears the new law will allow the payment of the modified mortgage outside the Chapter 13 plan, you can bet the Chapter 13 trustee will find new ways to harass debtors to keep administrative fees flowing.

If enacted, the mortgage modification will be permanent only after the completion of a 5 year Chapter 13 plan. However, the creation of a simple Motion to Modify Mortgage, which could be filed in Chapter 7, would streamline the modification of mortgages in this country, expediting the process by four and a half years!

Allowing the same modifications in Chapter 7 for debtors who otherwise qualify for Chapter 7 would reduce the necessary attorney time and eliminate exorbitant trustee fees, thus driving down the cost to consumers. The end result would mean greater numbers of successful mortgage modifications.

At the end of the day, what is Chapter 13? It is bankruptcy relief created for debtors who politicians believe are not deserving of Chapter 7. Keep this in the back of your mind as we continue bail out Wall Street and Detroit over the coming years.

America, it’s time to get real. While politicians play their fiddles in our nation’s capital, Rome is burning! Most of us have not ever lived through an economic catastrophe the likes of which will shape the next decade or so. While the current legislation is a baby step in the right direction, more can and should be done to save middle class homeownership.

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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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