Reply #1: Chapter13 bankruptcy required.

[dkf]

Sponsored by Rep. Zoe Lofgren (D-Calif.), the Democrats' proposal would allow underwater homeowners who file for Chapter 13 bankruptcy to skip interest payments for five years. Instead, all of their monthly mortgage payments would go toward paying down the principal balance. In return, homeowners would agree to settle any pending claims against their mortgage servicers.

"Coordination with the bankruptcy process would make these reductions more likely to succeed than other types of loan modifications, while also limiting the program to those who truly need it," Lofgren and a long list of California Democrats wrote in an Oct. 12 letter to President Obama promoting the idea.

http://thehill.com/homenews/house/190063-dems-say-administration-is-mulling-principal-paydowns-to-prevent-foreclosures?page=2#comments


What Does Chapter 13 Mean?
A U.S. bankruptcy proceeding in which the debtor undertakes a reorganization of his or her finances under the supervision and approval of the courts. As part of the reorganization, the debtor must submit and follow through with a plan to repay outstanding creditors within three to five years. In most circumstances, the repayment plan must provide a substantial payback to creditors - at least equal to what they would receive under other forms of bankruptcy - and it must, if needed, use 100% of the debtor's income for repayment.

Investopedia explains Chapter 13
Chapter 13 bankruptcy differs from the outright foreclosure of an individual's or business's assets (seen in Chapter 7 bankruptcy) and the expensive and complicated restructuring of debts seen in Chapter 11 bankruptcy. Essentially, Chapter 13 allows a debt-laden person or sole proprietorship that still has significant income to submit an orderly plan to the courts to pay back debts over a few years. Doing so can provide advantages to the debtor not found in other forms of bankruptcy, such as preventing the foreclosure of a residence.

http://www.investopedia.com/terms/c/chapter13.asp#axzz1bzNMijq7


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