The Red Tape Chronicles asks whether Obama is “backing the wrong horse” by championing credit card reform while ignoring bankruptcy reform that would allow bankruptcy judges to reduce mortgage loans in bankruptcy—just like they can do for all other debts. Credit card reform is a great thing, of course, but it will have a tiny effect on Americans compared with bankruptcy reform.
Why is bankruptcy reform so important? Currently, consumers who declare Chapter 13 bankruptcy — the kind where debtors repay their loans but get extra time and some debt relief — find themselves before a federal judge who gathers all the debt-holders into a room and forges a compromise payment plan. Credit card firms, personal loan holders — everybody takes a hit, based on what the debtor can realistically pay.
But currently, primary mortgages are exempt from the process. There’s no way to reduce a mortgage loan in bankruptcy. Mind you, mortgages on second homes can be reduced. So can loans for cars, boats investment properties, etc. Primary mortgages stand alone, outside bankruptcy courts.
Maybe bankruptcy reform champion Dick Durbin has an answer: ““And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
Obama picks credit card reform over housing | The Red Tape Chronicles