Saving Homes in Bankruptcy: Housing Affordability and Loan Modification

36 Pages Posted: 5 Mar 2009

See all articles by John Eggum

John Eggum

Foran Glennon Palandech Ponzi & Rudloff PC

Katherine M. Porter

University of California - Irvine School of Law

Tara Twomey

National Consumer Law Center; National Consumer Bankruptcy Rights Center

Abstract

This article examines the home affordability of chapter 13 bankruptcy debtors under current law, which prohibits the cram down or modification of residential mortgage loans. Using original empirical data from a national study of over 1700 chapter 13 bankruptcy cases, it analyzes the relationship between housing costs and income for bankrupt households. More than two-thirds of homeowners in chapter 13 bankruptcy live in unaffordable or severely unaffordable housing, according to the standards developed by the Department of Housing and Urban Development. Such families spend more than 30 percent of their incomes at the time of bankruptcy on paying their mortgages and related housing costs. The large fraction of their incomes that bankrupt homeowners commit to paying their housing cost reduces the odds that they will succeed in saving their homes in bankruptcy and completing their chapter 13 repayment plans. The Article considers how these data could inform the debate about whether Congress should amend the Bankruptcy Code to permit the modification of home mortgages, offering examples from real bankruptcy cases to show the beneficial effects of mortgage modification to create sustainable homeownership. It concludes that permitting mortgage modification would enhance the usefulness of bankruptcy as a tool to address the foreclosure crisis.

Keywords: mortgage, mortgage modification, bankruptcy, housing affordability, cram down, homeowenership, home mortgages, subprime housing, housing costs

JEL Classification: D12, D10, G21, K11, G33

Suggested Citation

Eggum, John P. and Porter, Katherine M. and Twomey, Tara, Saving Homes in Bankruptcy: Housing Affordability and Loan Modification. Utah Law Review, p. 1123, 2008; U Iowa Legal Studies Research Paper No. 09-10. Available at SSRN: https://ssrn.com/abstract=1349151

John P. Eggum (Contact Author)

Foran Glennon Palandech Ponzi & Rudloff PC ( email )

222 N. La Salle Street
Suite 1400
Chicago, IL 60601
United States
312-863-5053 (Phone)

HOME PAGE: http://www.johneggum.com

Katherine M. Porter

University of California - Irvine School of Law ( email )

401 E. Peltason Dr.
Ste. 1000
Irvine, CA 92697-1000
United States

Tara Twomey

National Consumer Law Center ( email )

7 Winthrop Square
Boston, MA 02110
United States

National Consumer Bankruptcy Rights Center ( email )

1501 The Alameda
San Jose, CA 95126
United States

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