What would happen if bankruptcy judges were given more power and what would that power consist of? Would it result in a rise or a fall in bankruptcy levels? These are great questions because there have been certain proposed changes to bankruptcy law to help those filing bankruptcy.
For instance, it is possible that Congress could pass a new law that would allow bankruptcy judges to modify home mortgages. This is so an individual would not lose their home.
A huge issue
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One of the issues facing individuals today are home loans that they cannot afford. Perhaps when they took out the loan they chose a variable rate and it has simply risen beyond what they can afford. This is one big reason why so many people file bankruptcy. They try to refinance through their bank, but they wait and refinance after they are too delinquent to be awarded another loan. It is a rather messy scenario.
In this case, the judge would be able to modify the loan terms and fix the loan to where the individual filing bankruptcy could pay their mortgage. It is great when someone is able to keep their home, but how is this going to affect the bankruptcy rates. As it stands, many are projecting 1.2 million bankruptcies at least, but are also predicting a figure that could go as high as 1.6 as the economy continues its downturn. If a judge could modify mortgages, then the number of people filing bankruptcy would increase.
Why would it increase?
The answer to this question is simple. Many try negotiations through their banks and it doesn't work. This means that bankruptcy court can be their next stop toward having something done about their mortgage.
So the question here is whether or not it is wise for bankruptcy judges to have more power?
Hot and cold issue
It's an issue that runs both hot and cold. There are two sides and they have their pros and their cons. For instance, individuals who are able to keep their homes will reduce the number of foreclosures occurring within the country. That is a big deal. However, the banks will have no control over what is happening and they still lose money. But the banks may not lose everything through the deal. They are deprived lending power for every foreclosure they have, so they could also benefit.
As for the bankruptcy rates, they could increase, but it is unlikely that they would double. Since the current bankruptcy laws require credit counseling, a debt management plan may help people save their homes without having to resort to bankruptcy. This is the ideal route since bankruptcies damage credit for quite some time.
What it comes down to is the fact that options need to be evaluated before taking the bankruptcy route. Even when judges have more power, hopefully all of the laws will work hand-in-hand to get a handle on the bankruptcy rates, which may not happen until there is a handle on the economy.
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