October 2, 2008
In the Vice Presidential debate tonight between Sarah Palin and Joe Biden, the topic of bankruptcy was brought up in regard to the housing market. Joe Biden mentioned that regulations are being discussed in order to provide relief to debtors filing a Chapter 13 bankruptcy. The relief would occur in the form of several methods, the major being the creditor’s claim amount being reduced to the current appraised value. In other words, if a debtor owes $100,000 to their mortgage company, but the appraised value is only $80,000; the pay back amount in the Chapter 13 Plan would be crammed down to $80,000.
Most people hearing this would be elated to know this Bill was being considered, but believe me folks; attorneys are already doing this and the mortgage companies are accepting it. There is no reason to spend time and money changing the bankruptcy law when this relief is already being implemented. Besides, if you think about it; why would a mortgage company try to repossess a home if they would only get the appraised value anyway? It would be worthless and the creditors know it. Therefore, if a home is appraised less than what is owed on it, the debtor only pays back the appraised value. Plain, simple and easy to understand. I don’t think we need additional intervention from the government on this one folks.
Besides, this cram down opens up additional benefits for the debtor also. When the loan value is reduced, the payments are also reduced as well as the interest rate. I recently worked on a Chapter 13 petition where the debtor had four properties that were mortgaged through Washington Mutual. As you know, Washington Mutual went out of business and was purchased by J.P. Morgan last week. Not only did the attorney I was working with lower the amount owed to the appraised value on each property, he also stripped out the arrearages, lowered the monthly payments and reduced the interest rate more than 50%. Of course the debtor was very happy and I also was happy that I worked on the good side of the bankruptcy law that benefits the average person.
Additionally, foreclosure mediation is another way to help borrowers. I talked with James Kline of Advanced Mediation in Michigan tonight. He said that just in the state of Michigan there is an average of 3,200 foreclosures being filed every DAY! The staff and James work daily with lenders to negotiate loans as a last step to filing bankruptcy. He told me that if a debtor is several months behind he can normally help them if they have only two months of mortgage payments to pay the lender. This is fantastic for the borrowers because by the time a Complaint for Foreclosure is filed, the borrowers are 7, 8, 9 or even more months behind in their mortgage payments. To be able to stay in their home paying only two months of arrearages is a lifesaver for borrowers and it is another way to help them without involving government regulations and changes in the law.
I personally have no opinion in the Presidential race. My focus is on the fact that God will put the right person in power to usher in the Antichrist; so I could care less who God chooses to put in the White House. I think God knows what He is doing and I do not question His decision. But I am concerned with the world of bankruptcy and changes in the law that effect you and me working as virtual bankruptcy assistants. My radar goes up every time someone mentions the word; and when I know something is factual, I report it to you. Have a great weekend!
Ref:
James Kline, Phone: 877-631-8408, Email: advancedmediation@sbcglobal.net
Bankruptcy Cram Down Article
http://www.inman.com/news/2008/02/1/bankruptcy-cram-downs-rolled-foreclosure-relief-bill
The Foreclosure Prevention Act of 2008
http://www.sourcewatch.org/index.php?title=Federal_housing_and_mortgage_legislation_(U.S.)
