West Palm Beach Bankruptcy Attorney

Important Things to Know about Bankruptcy and Mortgages

Across the country, there are millions of people who are facing foreclosure due to their ballooning mortgage payments on houses that are worth significantly less than their purchase price. Many people think that bankruptcy is the solution to this problem since judges have historically been allowed to renegotiate rates on other loans. Unfortunately, judges have been specifically barred from altering the interest rates and terms of mortgages on primary residences.

Part of why bankruptcy doesn’t help individuals whose greatest debt and payment each month is their home payment is that the bankruptcy laws were written, for the most part, over thirty years ago. When the laws were written, a fixed-rate mortgage lasting roughly thirty years was the only type of mortgage available. Part of the reason why judges cannot adjust these mortgages could be because there was no surprise in them. A homeowner knew exactly what the interest rate would be and for how long it would last.

Now, however, with a variety of types of mortgages and adjustable interest rates, there are plenty of surprises in mortgages. Allowing a judge to restructure a loan would be in everyone’s best interest. It would allow the homeowner to accomplish something in his or her bankruptcy case, a floor on housing prices could be set, and the bank would not have to get tangled up in the foreclosure process. Banks argue that they will lose money but statistics show that an adjusted, lower interest rate is more profitable for the bank than foreclosure.

As it stands now, a bankruptcy judge can adjust the loan terms for loans covering boats, vacation properties, and investment properties but not the terms for an individual’s primary residence.

Contact a West Palm Beach Bankruptcy Attorney

If you are in a dire financial situation and are considering bankruptcy, contact the West Palm Beach bankruptcy attorneys of Eric N. Klein & Associates at 561-353-2800.