Changes to bankruptcy laws coming?

There is much controversy in the Senate right now over a possible change to bankruptcy law in response to the current mortgage crisis. Currently bankruptcy judges can change the terms of certain kinds of debt such as credit cards and car loans in order to reduce the amount of debt owed and lower monthly payments. They can even make changes to mortgages on 2nd homes, vacation properties and investment properties, but they cannot change the terms of a mortgage on a primary residence. With so many people in danger of losing their homes to foreclosure, the Democrats are trying to push through a piece of legislation that would change that law and allow bankruptcy judges to change the terms of mortgages on primary residences as well in an effort to save those people from losing their homes. The supporters of this bill feel that lenders would make more of a voluntary effort to help struggling borrowers modify their loans in order to avoid allowing bankruptcy judges who are not knowledgeable in the mortgage industry to be able to modify the loans which would cost the lenders money.

As would be expected, lenders are opposed to the bill. They believe that if this piece of legislation is passed, there is a great potential for interest rates to rise again. It is also feared by other opposition that the lenders would start charging higher fees to cover the costs of loans that will never be paid in full. Neither of these results would do any good for the troubled economy.

The section of the bill that is causing the most amount of concern for the Republicans is a provision that sets up a $4 billion fund for lenders to buy up abandoned and foreclosed properties. This would help alleviate some of the lender’s losses and help the housing market recover some. It is being seen as a “bail out” though for the lenders and that is not sitting well with the opposition.

If the bill passes, it has been said that President Bush will veto it, but that Democrats would try to push it through the senate with a majority vote.

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