Helping Families Save Their Homes In Bankruptcy Act

Section 1. Short Title. Section 1 sets forth the short title of the bill as the “Helping Families Save Their Homes in Bankruptcy Act of 2009.”

Section 2. Eligibility for Relief. Bankruptcy Code section 109(e) sets forth secured and unsecured debt limits to establish a debtor’s eligibility for relief under chapter 13, currently equal to just over $1 million. Section 2 amends this provision to provide that the computation of debts does not include the secured or unsecured portions of debts secured by the debtor’s principal residence, under certain circumstances. First, the exception applies if the current value of the debtor’s principal residence is less than the secured debt limit. Second, the exception applies if the debtor’s principal residence was sold in foreclosure or the debtor surrendered such residence and the current value of such residence is less than the secured debt limit. Without this provision, many struggling homeowners in high-cost areas such as California would be ineligible for relief.

In addition, section 2 amends Bankruptcy Code section 109(h) to waive the mandatory requirement that a debtor must receive credit counseling prior to filing for bankruptcy relief, under certain circumstances. The waiver applies in a chapter 13 case where the debtor submits to the court a certification that the debtor has received notice that the holder of a claim secured by the debtor’s principal residence may commence a foreclosure proceeding against such residence.

Section 3. Prohibiting Claims Arising from Violations of Consumer Protection Laws. Section 3 amends Bankruptcy Code section 502(b) to disallow a claim that is subject to any remedy for damages or rescission as a result of the claimant’s failure to comply with any applicable requirement under the Truth in Lending Act or other applicable state or federal consumer protection law in effect when the noncompliance took place, notwithstanding the prior entry of a foreclosure judgment.

Section 4. Authority to Modify Certain Mortgages. Section 4 amends Bankruptcy Code section 1322(b) to permit modification of certain mortgages that are secured by the debtor’s principal residence in specified respects. The modification authority applies in a chapter 13 case where the debtor’s principal residence is the subject of a notice that a foreclosure may be commenced. New section 1322(b)(11) allows the court to modify the rights of a mortgagee by: (1) providing for payment of the amount of the allowed secured claim as determined under section 506(a)(1); (2) prohibiting, reducing, or delaying any adjustable interest rates applicable on and after the date the case is filed; (3) extending the repayment period of the mortgage for a period that is no longer than the longer of 40 years (reduced by the period for which the mortgage has been outstanding) or the remaining term of the mortgage beginning on the filing date of the case; and (4) providing for the payment of interest at an annual percentage rate calculated at a fixed annual percentage rate equal to that used for conventional mortgages as published by the Board of Governors of the Federal Reserve System, plus a reasonable premium for risk.

Section 5. Combating Excessive Fees. Section 5 amends Bankruptcy Code section 1322(c) to provide that the debtor, the debtor’s property, and property of the bankruptcy estate are not liable for a fee, cost, or charge incurred while the chapter 13 case is pending and that arises from a debt secured by the debtor’s principal residence, unless the holder of the claim complies with certain requirements. These requirements consist of the following: (1) the holder files with the court an annual notice of such fee, cost, or charge (or on a more frequent basis as the court determines) before the earlier of one year of when such fee, cost, or charge was incurred or 60 days before the case is closed; (2) the fee, cost, or charge is lawful under applicable nonbankruptcy law, reasonable, and provided for in the applicable security agreement; and (3) the value of the debtor’s principal residence is greater the amount of the claim, including such fee, cost or charge. If the holder fails to give the required notice, such failure is deemed to be a waiver of any claim for fees, costs, or charges (as described in this provision) for all purposes. Any attempt to collect such fees, costs, or charges would constitute a violation of the Bankruptcy Code’s discharge injunction under section 524(a)(2) or the automatic stay under section 362(a).

Section 5. further provides that a chapter 13 plan may waive any prepayment penalty on a claim secured by the debtor’s principal residence.

Section 6. Confirmation of Plan. Section 6 amends Bankruptcy Code section 1325(a) to provide certain protections for a creditor whose rights are modified under new section 1322(b)(11). As a condition of confirmation, it requires a plan to provide that such creditor must retain its lien until the later of when the claim (as modified) is paid or the debtor obtains a discharge. In addition, the court must find that the modification is in good faith.

Section 7. Discharge. Bankruptcy Code section 1328 sets forth the requirements for discharge. Section 7 amends section 1328(a) to clarify that a claim modified under section 1322(b)(11) is not discharged to the extent of the unpaid allowed secured portion of the claim.

Section 8. Effective Date; Application of Amendments. Section 8(a) provides that the Act and the amendments made by it, except as provided in subsection (b), take effect on the Act’s date of enactment. Section 8(b) provides that the amendments made by the Act apply to cases commenced under title 11 of the United States Code before, on, or after the Act’s date of enactment.

For help in saving your home, call the Fort Lauderdale bankruptcy attorney at the Bankruptcy Law Firm of Clare Casas. First consultations are always free.