Bankruptcy Reform Back on the Table

One of the earliest ideas for helping homeowners facing mounting mortgage debt and potential foreclosure on their home was to reform bankruptcy laws. The concept is now officially back on the table, introduced into the Congressional lame-duck session by Senator Richard Durbin (D-IL).

Durbin's bankruptcy reform legislation would allow judges to modify mortgage terms in bankruptcy cases. Although altering and restructuring the terms of other debts, like credit card, medical, and student loans is common modifying mortgage loans has been controversial.

This is not the first time the Senate has seen a similar bill. In April, similar mortgage bankruptcy legislation was presented and voted down. This proposal was also backed by Senator Durbin.

However, this time with Congress convening a lame-duck session expressly for the consideration of aid to distressed homeowners and a crippled auto industry, the bankruptcy reform may successfully ride on a auto bailout bill.

Senator Durbin's new bill also invokes some new features: requiring certain federal agencies to restructure mortgage loans already in government homeowner assistance programs and bars banks participating in bailout programs from increasing shareholder dividends while the government owns preferred shares.

President Bush has issued strong indications that his administration opposes an auto industry bailout beyond what is provisioned for energy modernization programs. Consequently, any legislation during this lame-duck session may be dead until the new Congress reconvenes in January.