Bank Bailout Causing Bankruptcy Reform?

Maybe a possibility and one I would call a necessity.

If consumer groups and some legislators had their way, the $700 billion financial bailout bill would have included a provision to let federal bankruptcy judges lower payments on subprime mortgages to help homeowners who had fallen behind on their payments avoid foreclosure.

Still, it's possible that bankruptcy reform provision could get taken up by Congress next year, observers say. And while East Bay Democrats have indicated they would support the reform, any attempt to do so is likely to face strong opposition from Republicans and the powerful mortgage, home building and banking industries.

Supporters contend that letting bankruptcy judges lower interest rates and principal due on a homeowner's primary mortgage would help delinquent borrowers make payments and keep their homes, help stop the downward spiral of housing prices that hurts all homeowners and protect lenders from financial losses associated with foreclosure.

"Having a loan modified in lieu of foreclosure is a far preferred outcome for borrowers, for lenders, for neighbors and for taxpayers as well," said Paul Leonard, California director of the Center for Responsible Lending. The Center estimates if bankruptcy judges could modify existing loans, up to 600,000 homeowners nationwide, including up to 120,000 in California, would avoid foreclosure.

For more see Bankruptcy reform provision could return next year from The San Jose Mercury News.