Friday, October 21, 2011

What is the Principal Paydown Plan?

Lawmakers in Congress have been struggling with a solution to the foreclosure crisis for nearly five years.  The fact is, many Americans want to keep their homes, but falling housing prices and a somewhat stale economy have forced many to walk away from the place they call home.  Unfortunately, many people are upside down on their mortgages and cannot sell their property for what it’s worth.  Chapter 13 bankruptcy can help those mortgagees who have a second under-secured mortgage but it does nothing to alter the terms of the first under-secured mortgage.

The proposed Principal Paydown Plan (“PPP”) offers some help to homeowners who are upside down on their first mortgage.  If enacted, the Principal Paydown Plan would restructure underwater mortgages in Chapter 13 bankruptcy.  Homeowners would continue to pay their current mortgage rate while in the Chapter 13, but all payments would go towards the principal loan balance.  The mortgage company would not be allowed to collect interest during the life of the Chapter 13 bankruptcy, which can be up to 60 months or five years.   Homeowners would be able to eliminate negative equity during this time, acquiring positive equity and then refinance the mortgage into a market rate loan at the end of the bankruptcy.

There is obviously no “easy fix” for the mortgage crisis, and this plan will not help every home owner, but I believe it is a step in the right direction.  According to the NACBA, recent research has shown a strong correlation between negative equity and mortgage delinquency.  Homeowners may have less incentive to stay in the home if they are unlikely to move into a positive equity position in the near future.  For these homeowners, reducing the monthly payment to a more affordable level does not solve the underlying problem of negative equity.  Through Chapter 13 bankruptcy and the Principal Paydown Plan, homeowners now have a possible solution to their negative equity nightmares. 

There are approximately 1.6 million active and pending Chapter 13 bankruptcy cases in the country, and of those, approximately 880,000 include mortgages.  The Principal Paydown Plan could apply to most if not all of these cases.  This plan hopes to help stabilize the housing market, as well as individual communities across the country.  If you’d like to help support the effort to get the Principal Paydown Plan enacted into law simply go to and click “sign the petition” after you have created an account.

If you have questions regarding bankruptcy in Indiana please contact Jackson & Oglesby Law at (877) 489-0908 or visit us at Jackson & Oglesby Law can assist you with all aspects of your bankruptcy case. If you have questions regarding Chapter 7 bankruptcy, Chapter 13 bankruptcy, stopping foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging debt, etc. we can help! Please call us today for your free phone consultation to determine which bankruptcy may be right for you.


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