“..reflected in a House bill recently introduced – would make changes to the regulations for Chapter 13 bankruptcies, which don’t wipe out debts, but rather establish a repayment plan.
Under current law, when a person files for Ch. 13 bankruptcy, judges cannot reduce mortgage debt owed on a person’s primary residence, although they may modify mortgages on investment property or second homes.
Under the House bill, the bankruptcy judge would have the option of reducing what the homeowner owes the lender. Say a homeowner’s property is worth less than what he owes. The judge could reduce the principal to match the home’s current market value as well as reduce the loan’s interest rate.
The rest of the original principal would then be treated as unsecured. That means it becomes a lower priority for repayment than the borrower’s secured debt, such as the newly reduced principal on his home. Unsecured debts may be discharged.”
In this scenario – can a “tweak” like this keep prices high – or if the judge reduces the debt obligation..will that effectually drive prices down anyway?
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