[WASHINGTON, D.C.] – United States Senator Dick Durbin (D-IL) introduced legislation today which will allow hundreds of thousands of homeowners to modify their mortgages in bankruptcy to avoid foreclosure.

The collapse of the subprime mortgage market has put approximately 2.2 million families in danger of losing their homes. Durbin’s bill, The Helping Families Save Their Homes Act, will allow these families, as a last resort, to file for Chapter 13 bankruptcy and work with a judge and the lender to modify the mortgage so families can make affordable payments and keep their homes.

"The law should give American families facing foreclosure the opportunity to negotiate a workout on their mortgages.  This bill may help them reach a degree of financial stability -- even when the market cannot," Durbin said. "Small changes to an outdated bankruptcy code could help over 600,000 at risk families keep their homes, while affordably paying back their obligations. We should be giving families every reasonable tool to ensure they can keep a roof over their heads."
 
Today, virtually every type of personal debt, including vacation homes and family farms, can be restructured in bankruptcy with the exception of mortgages on a primary residence. This exception dates to the 1970's, when most mortgages were fixed rate, long term agreements between local bankers and their neighborhood customers. The mortgage market has changed considerably since the 1970’s, such that mortgages on primary residences are often now the primary cause of financial distress. This bill would help the bankruptcy code catch up with this shift. According to the Center for Responsible Lending, approximately 638,000 families - over 25% of those at risk - would save their homes under Durbin’s bill.

To help families save their homes, the Durbin bill would:

• Eliminate a provision of the bankruptcy law that prohibits modifications to mortgage loans on the debtor’s primary residence, so that primary mortgages are treated the same as vacation homes and family farms.

• Extend the time frame debtors are allowed for repayment, to support long-term mortgage restructuring.

• Waive the bankruptcy counseling requirement for families whose houses are already scheduled for foreclosure sale, so that precious time is not lost as families fight to save their homes.

To further help families get back on their feet financially as they go through bankruptcy, the bill would also:

• Combat excessive fees that are sometimes charged to debtors in bankruptcy.

• Maintain debtors’ legal claims against predatory lenders while in bankruptcy.

• Reinforce that bankruptcy judges can rule on core issues rather than deferring to arbitration.

• Enact a higher homestead floor for homeowners over the age of 55, to help older homeowners who are fighting to keep their homes as they go through bankruptcy but live in states with low homestead floors.

• Reinforce that consumer protection claims are still available in bankruptcy.

Durbin’s bill has received broad support from groups which include: AARP; AFL-CIO; Consumer Federation of America; Consumers Union; NAACP; National Association of Consumer Bankruptcy Attorneys; National Council of La Raza; National Fair Housing Alliance; National Urban League and SEIU.