Where HAMP Fails, Chapter 13 Should Be Improved

In a letter addressed to President Barack Obama on January 19, 2012, Representatives Mike Thompson, Zoe Lofgren and Anna Eshoo led a group of 27 California members of Congress pushing for immediate action to address the foreclosure crisis. Noting that 10.7 million homeowners nationwide owed more on their mortgages than their homes are worth, the letter stated that the “overwhelming feedback” from constituents is that the Home Affordable Modification Program (HAMP) has not helped them. The letter then mentioned that one idea proposed by the California legislators involved a temporary reduction in interest rates of certain homeowners who file Chapter 13 bankruptcy, “so that the entirety of their monthly payments would be dedicated to paying down their principal balances for five years.”

I have noted before that Chapter 13 is a logical option for many of the homeowners that HAMP could not assist. Many people opt for a Chapter 13 bankruptcy plan specifically to stop foreclosure, as Chapter 13 allows debtors to keep homes, cars and other types of secured debt. Like HAMP, changes to the Obama Administration’s Home Affordable Refinance Program (HARP) have also helped only a fraction of the families facing foreclosure. Homeowners already facing negative equity or very close to being underwater would benefit the most from mortgage principal reductions since they are at the highest risk of foreclosure. Furthermore, the rate reduction would make Chapter 13 even more beneficial than it already is.

Because you will be repaying your debt, either in full or in part, Chapter 13 allows you to generally keep your assets. However, the bankruptcy trustee assigned to your case is involved for a longer period than he or she would in a Chapter 7 case, as he or she is responsible for making sure you are adhering to your repayment plan. The trustee is looking out for your creditors, which is why you will want a Maryland or Washington DC bankruptcy lawyer looking out for your own best interests. I will further discuss the role of the trustee on Wednesday.

Law Firm of Kevin D. Judd – Washington DC bankruptcy attorney



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