Mortgage bankruptcy is occurring at an alarming rate, with millions of filings last year and millions more expected over the next 18 to 24 months. In an attempt to assist struggling homeowners, the U.S. government enacted the 'Conyers Bill' in 2007.
The mortgage bankruptcy bill is surrounded in controversy because it modified the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which took effect in 2005. However, Conyers Bill provides relief to certain homeowners who wish to retain ownership of their home in the event of bankruptcy.
The Conyers Bill granted bankruptcy courts authority to alter terms of existing mortgages for the benefit of the homeowner. Mortgage terms which can be altered include the reduction of principal mortgage balance to reflect accurate market value of the property; reduced interest rates; and elimination of excessive fees.
Changing mortgage terms provides the Borrower with the opportunity to regain control over their finances. As long as the homeowner can adhere to their repayment plan, mortgage lenders can recoup their losses and avoid initiating foreclosure proceedings.
The Conyers Bill offers protection to Borrowers who obtained a subprime or non-traditional mortgage loan after January 1, 2000 and were later forced to seek protection through Chapter 13 bankruptcy. Homeowners are required to provide sufficient proof showing they lack the financial means to remain current or cure arrears on their mortgage note.
When Borrowers petition the bankruptcy court for Chapter 13 protection, their primary goal is generally to save their home from foreclosure. Since Chapter 13 bankruptcy offers debtors financial relief through restructuring of debt and an extended repayment plan, courts can control the terms to ensure both the Borrower and lender are protected.
Debtors are required to make payments directly to the bankruptcy Trustee, who then distributes payments to creditors. In the event the debtor fails out of bankruptcy, creditors can seek protection through the court and request the bankruptcy be dismissed.
A judge reviews the events which caused the debtor to fail out of bankruptcy. Depending on the circumstances, the judge can elect to allow the debtor to file for Chapter 7 protection or dismiss the case altogether.
Chapter 7 bankruptcy requires debtors to liquidate assets and use the proceeds to repay creditors. Outstanding balances are discharged and the debtor is no longer responsible for repayment.
If the debtor failed out of bankruptcy due to irresponsible spending, the judge can elect to dismiss the case and the debtor loses all protection from the court. Creditors are able to commence with collection actions, including foreclosure. In some cases, foreclosure can commence within 72 hours.
Anyone considering protection under the mortgage bankruptcy bill should seek legal counsel from a qualified bankruptcy lawyer. Bankruptcy has many consequences and remains on your credit history for up to ten years.
Financial experts recommend engaging in bankruptcy alternative such as debt settlement, debt consolidation or credit counseling whenever possible. For those who have no other option, mortgage bankruptcy might be an option which can be used to save your home as long as you are able to adhere to the repayment plan.
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