To keep up with economic news that could affect my Indiana bankruptcy law clients, I read as many newspapers and journals as I can, including the editorial pages. Just a few days ago, the New York TImes ran an editorial in support of a proposal by Senator Richard Durbin (the Democratic senator from Illinois) to allow bankruptcy courts to modify repayment terms on home mortgages. Durbin’s intent is to prevent more foreclosures from happening.
To give you some background on this issue of including mortgages in bankruptcy proceedings, under the law now, mortgages on primary homes are the only kind of secured debt that is not eligible to be modified in a bankruptcy. Those in favor of changing this law want to give folks filing bankruptcy more of chance to repay their mortgages over longer periods of time, or even at reduced interest rates, thereby keeping the homeowner’s monthly payments more manageable.
Those against changing the current law worry that if a long-term contract like a mortgage can be modified, businesses and individuals will not want to enter into any kind of long term contracts. They fear this type of bankruptcy protection would severely hurt business in general. The mortgage industry warns that, if mortgages can be modified, all mortgages will cost more, because lenders will feel they have more risk. The next step for the Durbin proposal is the Judiciary Committee, which has the jurisdiction over bankruptcy issues. A couple of weeks ago, I remarked on the fact that bankruptcy is making headlines frequently these days, and this editorial is just one more example of the press starting to pay close attention to bankruptcy.