Without action to reduce or eliminate negative equity, the economy will continue to be plagued by declining property values. Negative equity in real estate prevents families from selling their homes to upgrade as their families grow or to relocate for a new employment in the near future, because they cannot sell their current underwater home. This unfortunate reality will perpetuate foreclosures and economic instability for the foreseeable future, effectively preventing substantial economic improvement.
The current bankruptcy code offers homeowners limited relief from the current housing crisis. In Chapter 13 bankruptcy, section 1322 of the Bankruptcy Code permits the reduction or """"cram-down"""" of an entirely unsecured second mortgage on a primary residence. The unsecured portion is bundled with the debtor's other unsecured debt, may receive some repayment under the Chapter 13 plan, and is discharged upon plan fulfillment. No portion of the debt is """"secured"""" as defined by Section 506 of the code. However, the mortgage cannot be compressed down if any portion of the loan is secured (based on the property's replacement value).
The same provisions also allow the debtor to draw down negative equity in other unsecured debts, such as auto loans. Mortgages on investment and other non-primary residence properties are also eligible for consolidation. Interestingly, however, the provision does not presently apply to first mortgages on primary residences or partially secured mortgages on primary residences. In other terms, the bankruptcy code contains a provision that specifically undermines homeownership.
If homeownership is the foundation of the American Dream and a stabilizing force, then the code should be amended to regard all unsecured debt equally, including subprime mortgages on primary residences. The flawed policy choice of the current bankruptcy code guarantees that the US real estate debacle will persist, home ownership rates will continue to fall, and the nation's economic instability will persist for the foreseeable future.
Congress should take decisive action to safeguard homeowners and home-ownership by amending the code to permit the consolidation of all unsecured debt in chapter 13 bankruptcy. In doing so, Congress would assist in stemming the decline of home ownership and stabilizing property values and the economy.""
" - https://www.affordablecebu.com/
