By Mitch Klein

THE news is full of articles and reports of the very real mortgage foreclosure crisis sweeping the nation. These foreclosures are hitting the middle class as never before. While the federal government is willing to spend hundreds of billions of taxpayers' money to rescue lenders, almost nothing is being done to stop the crushing effect of foreclosures upon middle-class families.

One solution to the foreclosure crisis lies in the proposed amendment of the Bankruptcy Code by Congress. Currently, Chapter 13 of the Bankruptcy Code gives the bankruptcy judge very wide powers to modify financial obligations and contracts of consumers. The only obligation that the bankruptcy court is presently forbidden to modify is the terms of the first and second mortgage of your principal residence. The payments on cars and mobile homes are typically adjusted downward to meet the consumer's ability to pay.

For example, if a Chapter 13 debtor owes $25,000 on his or her car loan and the car is only worth $10,000, the Court will allow the debtor to "cram down" the amount owed to the fair market value of the car. The interest rate can also be adjusted downward several percentage points to make the payments more affordable. In this example the debtor could see a monthly car payment drop from $505 per month to $202.

There have been proposals made to Congress to extend this "cram-down" power to first and second mortgages alike. Many of the families facing foreclosures are saddled with high interest loans and loans (often first and second mortgages) that now exceed the value of their homes. Many of these loans were made upon inflated appraisals. If the bankruptcy courts are given the power to "cram down" the mortgage debt to the fair market value of the house and apply a reasonable interest rate, a large percentage of foreclosures could be avoided.

This proposal does not mean that more bankruptcies will be filed. If Congress gave the bankruptcy court the "cram-down" power, lenders would quickly realize the implications and start contracting their borrowers to voluntarily negotiate loan modifications in order to avoid the full effect of the "cram down." Even consumers that filed Chapter 7 cases between 2001 and 2007 could take advantage of the proposed "cram-down" provision by filing a Chapter 13.

The best part of this change in the law is that it would cost the taxpayer next to nothing to implement, and it would provide almost immediate relief to those facing foreclosure.

Additionally, it does not reward the lenders who have taken advantage of consumers and bear a large part of the responsibility for the foreclosure crisis.

Klein is a bankruptcy lawyer in

Hurricane and Huntington.

By Mitch Klein

THE news is full of articles and reports of the very real mortgage foreclosure crisis sweeping the nation. These foreclosures are hitting the middle class as never before. While the federal government is willing to spend hundreds of billions of taxpayers' money to rescue lenders, almost nothing is being done to stop the crushing effect of foreclosures upon middle-class families.

One solution to the foreclosure crisis lies in the proposed amendment of the Bankruptcy Code by Congress. Currently, Chapter 13 of the Bankruptcy Code gives the bankruptcy judge very wide powers to modify financial obligations and contracts of consumers. The only obligation that the bankruptcy court is presently forbidden to modify is the terms of the first and second mortgage of your principal residence. The payments on cars and mobile homes are typically adjusted downward to meet the consumer's ability to pay.

For example, if a Chapter 13 debtor owes $25,000 on his or her car loan and the car is only worth $10,000, the Court will allow the debtor to "cram down" the amount owed to the fair market value of the car. The interest rate can also be adjusted downward several percentage points to make the payments more affordable. In this example the debtor could see a monthly car payment drop from $505 per month to $202.

There have been proposals made to Congress to extend this "cram-down" power to first and second mortgages alike. Many of the families facing foreclosures are saddled with high interest loans and loans (often first and second mortgages) that now exceed the value of their homes. Many of these loans were made upon inflated appraisals. If the bankruptcy courts are given the power to "cram down" the mortgage debt to the fair market value of the house and apply a reasonable interest rate, a large percentage of foreclosures could be avoided.

This proposal does not mean that more bankruptcies will be filed. If Congress gave the bankruptcy court the "cram-down" power, lenders would quickly realize the implications and start contracting their borrowers to voluntarily negotiate loan modifications in order to avoid the full effect of the "cram down." Even consumers that filed Chapter 7 cases between 2001 and 2007 could take advantage of the proposed "cram-down" provision by filing a Chapter 13.

The best part of this change in the law is that it would cost the taxpayer next to nothing to implement, and it would provide almost immediate relief to those facing foreclosure.

Additionally, it does not reward the lenders who have taken advantage of consumers and bear a large part of the responsibility for the foreclosure crisis.

Klein is a bankruptcy lawyer in

Hurricane and Huntington.