New bill aims to protect homes (from bankrate.com)
Monday, Sept. 17
Posted 4 p.m. Eastern
Congress considers changes to bankruptcy law
A proposed law is causing a lot of buzz in the bankruptcy industry.
It's called the Helping Families Save Their Homes Act and it would change how home mortgages in consumer bankruptcy cases are treated. This measure hasn't been introduced yet and is still subject to changes. However, bankruptcy professionals and financial institutions are already chiming in with their thoughts.
Mark Scarberry, a law professor at Pepperdine University and scholar at residence at the American Bankruptcy Institute, recently took a close look at the Act and shared his thoughts in an article. Key changes he says the Act would make include:
Limiting fees that could be added to a home mortgage during a Chapter 13 case.
In Chapter 7 cases, expand the 722 redemption provision, which is typically used to help debtors keep their car, to include a debtor's primary home.
Waive the pre-bankruptcy counseling if the debtor's home is in foreclosure.
Scarberry explains the redemption gets rid of the lien on the property, but in order to do that, the debtor has to come up with a lump sum of cash. Getting rid of the lien may allow the debtor to refinance in order to get the sum required. This exchange all happens at once, he says. The money is advanced in order to redeem the property.
Scarberry says the financial industry's take on this bill focused mostly on costs that could accrue with some of the changes and the idea that nixing pre-bankruptcy credit counseling wouldn't be beneficial to debtors.
What the bankruptcy law says regarding foreclosures
I asked Scarberry what consumers should know about the bankruptcy law and its effects on foreclosures. He said:
"Almost all filings of a bankruptcy petition create something called the automatic stay, which stops the creditor's activity. One of the things the automatic stay does is stop a foreclosure, but only temporarily. The bankruptcy isn't going to allow the debtor in a typical case to keep the home.
"The mortgage company will get relief from the automatic stay. It could be within a month or two months depending on the particular court. If the debtor filed a bankruptcy in the past and tried to stop a foreclosure and is filing and filing to put off another foreclosure, the relief can be very fast.
"The way to stop the foreclosure is to refinance, but most people have tried to borrow against their homes and either they failed or already borrowed the money and have gone through a refinance."
Scarberry says the one way a Chapter 7 bankruptcy could help consumers behind in their mortgage is if they go to the finance company and say, "Once we discharge the other debts, we'll make our regular mortgage payments and we'll have enough to pay some amount towards those back mortgage payments. Give us a year or 18 months."
He says if the banks are willing to go with that, then maybe the person could save their home.
Monday, Sept. 17
Posted 4 p.m. Eastern
Congress considers changes to bankruptcy law
A proposed law is causing a lot of buzz in the bankruptcy industry.
It's called the Helping Families Save Their Homes Act and it would change how home mortgages in consumer bankruptcy cases are treated. This measure hasn't been introduced yet and is still subject to changes. However, bankruptcy professionals and financial institutions are already chiming in with their thoughts.
Mark Scarberry, a law professor at Pepperdine University and scholar at residence at the American Bankruptcy Institute, recently took a close look at the Act and shared his thoughts in an article. Key changes he says the Act would make include:
Limiting fees that could be added to a home mortgage during a Chapter 13 case.
In Chapter 7 cases, expand the 722 redemption provision, which is typically used to help debtors keep their car, to include a debtor's primary home.
Waive the pre-bankruptcy counseling if the debtor's home is in foreclosure.
Scarberry explains the redemption gets rid of the lien on the property, but in order to do that, the debtor has to come up with a lump sum of cash. Getting rid of the lien may allow the debtor to refinance in order to get the sum required. This exchange all happens at once, he says. The money is advanced in order to redeem the property.
Scarberry says the financial industry's take on this bill focused mostly on costs that could accrue with some of the changes and the idea that nixing pre-bankruptcy credit counseling wouldn't be beneficial to debtors.
What the bankruptcy law says regarding foreclosures
I asked Scarberry what consumers should know about the bankruptcy law and its effects on foreclosures. He said:
"Almost all filings of a bankruptcy petition create something called the automatic stay, which stops the creditor's activity. One of the things the automatic stay does is stop a foreclosure, but only temporarily. The bankruptcy isn't going to allow the debtor in a typical case to keep the home.
"The mortgage company will get relief from the automatic stay. It could be within a month or two months depending on the particular court. If the debtor filed a bankruptcy in the past and tried to stop a foreclosure and is filing and filing to put off another foreclosure, the relief can be very fast.
"The way to stop the foreclosure is to refinance, but most people have tried to borrow against their homes and either they failed or already borrowed the money and have gone through a refinance."
Scarberry says the one way a Chapter 7 bankruptcy could help consumers behind in their mortgage is if they go to the finance company and say, "Once we discharge the other debts, we'll make our regular mortgage payments and we'll have enough to pay some amount towards those back mortgage payments. Give us a year or 18 months."
He says if the banks are willing to go with that, then maybe the person could save their home.