Senate Bill 2636 (Harry Reid, D, NV), which contains a provision that would allow for the modification of home mortgage loans in bankruptcy, will be up for a vote by the full Senate next week.

I urge anyone out there to contact your Senators and urge them to pass this legislation and specifically to keep this provision in the legislation. 

According to NACBA, the National Association of Consumer Bankruptcy Attorneys this is our best chance at getting real mortgage relief this year!  Please ask your fellow attorneys, family members, and clients to do the same. 

Obviously, this piece of legislation is strongly opposed by mortgage bankers and their allies.  We need strong support from you to get this done!

This week, the House Judiciary Committee passed legislation sponsored by John Conyers (D-MI) and Steve Chabot (R-OH) that would allow bankruptcy judges to modify some mortgages in chapter 13 bankruptcies.  The highlight of the legislation which will now go to the full House for a vote is that chapter 13 would allow the debtor to lower both the principal balance on a mortgage and possibly the interest rate based on the value of the property.  Thus, if a debtor’s mortgage exceeds the value of the property, by filing for bankruptcy, the debtor could reduce mortgage payments.

 The House Judiciary Committee approved the legislation after making some limitations on the legislations scope.  First, the legislation only applies to loans made after 1/1/00 and already existing as of the enactment of this legislation, so this legislation won’t help those who get loans after the date of the legislation.  Second, the legislation only applies to nontraditional, subprime loans, not all mortgages.  Third, the legislation will only apply to loans where the mortgage company has already served a Notice of Foreclosure.  Finally, the legislation limits judicial discretion so that the judge can not lower the mortgage below market value and can not lower the interest rate below conventional mortgage rates.

 The legislation is expected to be considered in the full House in January or February of 2008 and the Senate Judiciary Committee is expected to take up similar legislation in January or February of 2008.  Lobby your Congressmen and Congresswomen to pass this legislation!  Despite its limitations, there are thousands of people who could benefit and keep a roof over their head if Congress enacts and the President signs this legislation.   

According to RealtyTrac, on online marketplace for foreclosed properties, a total of 925,986 houses were at some point in the foreclosure process during the first six months of 2007.  This was a 55% increase compared to the same time period in 2006.  That equates to one foreclosure for every 134 households during the first half of the year.

James J. Saccacio, CEO of RealtyTrac predicts that at this rate, foreclosures could easily surpass 2 million filings by the end of the year!  This would be a 65% increase over 2006.  The states with the largest foreclosure rates are Nevada, Colorado, Michigan, Florida, Ohio, Georgia, Arizona, Connecticut and Indiana.

In my experience, most of my clients find it a difficult decision to file for bankruptcy. I find that their concerns and fears are not related to the economics of the situation. That part is usually painfully clear. The fears and anxiety about bankruptcy most of the time arise because of personal guilt, fears about the future, or morality struggles.

As a lawyer, I can provide information and offer my experience to address guilt and fears about the future, but it is very difficult to address someone’s moral dilemma. The fact is, most of us were raised in a culture that preaches that we should all be “responsible” and should “pay your bills.” I, as a Christian, have heard sermons from well-meaning church leaders about how filing bankruptcy is not a “responsible, Christian” thing to do and that a good Christian should struggle to “honor” our obligations, even to the point of adopting a pauper’s existence.

The point of this blog is not to offer an opposing view on these attitudes (believe me, I have one!). But, recently I read an article reporting about studies that were completed by “The Insolvency Service.” The report was titled “Attitudes to Bankruptcy Revisited.” The report looks at the results of surveys carried out in 2006 and 2007 which were carried out to obtain a cross section of views regarding attitudes to bankruptcy. In particular, the surveys wanted to establish whether there was a stigma attached to bankruptcy and if so, why.

The results of the surveys from 2006 and 2007 were compared to the results of surveys taken in 2004. The report found that while opinions of bankrupts and businesses have not changed significantly since the previous surveys, the opinions of individuals have changed. In the latest surveys, only 43% of individuals interviewed thought there was a stigma associated with bankruptcy. This was down from 53% in the previous survey.

It is interesting how attitudes have changed so significantly in just 2-3 years. The full report can be found at http://www.insolvency.gov.uk under “Insolvency Profession & Legislation.” The report didn’t really explore why the attitudes have changed, but it is interesting to me to see how they obviously have changed.