New Bankruptcy Law Aims to Prevent Foreclosures for Struggling Families

A new bill that gives bankruptcy judges the authority to change the terms of a mortgage for struggling homeowners was passed by the U.S. House.  The bill could also cut the number of foreclosures by 20 percent, said Carey Ebert, a bankruptcy lawyer in Texas and the president of the National Association of Consumer Bankruptcy Attorneys.

Ebert says the bill, which will likely face a Senate vote sometime next week, would be the most effective foreclosure prevention law yet.

Many people file for bankruptcy because of home loans, but judges have little authority over mortgages. This bill, known as the Helping Families Save Their Homes Act, aims to provide relief to those people.

"None of the attorneys who have clients in a foreclosure situation have been successful in having a loan modified through any of the programs that are out there," said Ebert.

Ebert says some of her clients have been able to roll their payments in arrears to the back of the mortgage or have the mortgage payments paused during a temporary setback.  But neither of these arrangements helps people whose interest rates have increased, thus resulting in payments that are financially insurmountable.

But critics of the bill say that if the bill is passed lenders would increase interest rates to cover a perceived risk, ultimately making buying a home more expensive.

Nevertheless, some organizations, like the Center for Responsible Lending, are applauding the House's approval.

"Since the hemorrhaging of foreclosures began over two years ago, hundreds of thousands of families have lost their homes unnecessarily, and tens of millions of neighboring families have watched the value of their homes plummet," said Michael Calhoun, the group's president.

For more information about how  bankruptcy is affecting foreclosures, click here to find a bankruptcy lawyer near you.