Chapter 13 could be your lucky number

Today President Obama announced his homeowner bailout plan. While that plan will spend huge sums of money helping “renters” stay in homes they couldn’t afford and creating incentives for homeowners who don’t need handouts to get in the food lines, it stops at rewriting mortgage contracts. But that’s likely to come soon with the “Helping Families Save Their Homes in Bankruptcy Act of 2009.”

On a fast track now in both the House and the Senate, the legislation would allow homeowners in Chapter 13 bankruptcy reorganization plans to completely rewrite the terms of their mortgage contract –

–reduce the principal of their mortgages,

–lower the interest rate to the current fixed rate, and

–reset the term of the mortgages to 40 years less the time the mortgage was in effect.

The legislation would apply to all mortgages written before the measure is enacted.

Talk about incentives to declare bankruptcy – this legislation is an enticement. It’s likely that the already swamped bankruptcy courts will soon need their own bailout.

More importantly, consider what this legislation does to contracts. What a deal – two parties willingly sign a contract and one gets to rewrite it at will. Who says the number 13 is unlucky?