Making Homes Affordable: How the Bankruptcy Code Can Help Homeowners Avoid Foreclosure


As the foreclosure crisis in America shows few signs of slowing, the government has

been faced with the task of implementing a solution to assist homeowners in avoiding foreclosure. Avoiding foreclosures is essential for ensuring credit availability in the housing market and maintaining economic stability. The response that has been fashioned is the Making Homes Affordable Plan run by the Treasury Department. The Plan seeks voluntary modification on monthly mortgage payments for homeowners in default or at risk of default by creating incentives for servicers willing to make these modifications. Despite the good intentions of this program, there have been numerous problems and no real change in the number of foreclosures occurring since its inception. Further, the Plan does not deal with the fundamental issues in the housing market that created the foreclosure crisis in the first place. This paper argues that in order to deal with the foreclosure crisis and provide a sustainable housing credit market in the long-term, the government should focus on legislative change to the Bankruptcy Code. Rather than pursuing a policy program to attempt to modify home mortgages, Chapter 13 of the Bankruptcy Code should be amended so that homeowners can modify the mortgage on their primary residence when the homeowner’s mortgage is in the unaffordable range at the time the

1loan is made (30% of a homeowner’s income, as defined by the U.S. Department of Housing and Urban Development (“HUD”)).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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