Category — Revision to law

Senator Chris Dodd has proposed amending the current Bankruptcy law to allow homeowners to “cram down” the unsecured portion of their mortgage debt. Full story.

For example, John and Mary have a $500,000 mortgage on their residence. The home’s fair market value is only $400,000. The $100,000 difference is technically unsecured debt.

Under present bankruptcy law, John and Mary could abandon their home and owe nothing, but they couldn’t stay in the home unless they honored the entire $500,000 mortgage as secured debt.

Under Senator Dodd’s proposal, the couple could, in bankruptcy, reduce the mortgage to $400,000 and discharge the remaining $100,000. The Senator has several other suggested changes that are viewable on line at the Senator’s web site.