Jim Shenwick's letter to Christopher Mayer on modification of first mortgages in Chapter 13 bankruptcy

Dear Mr. Mayer:

I read a synopsis of your testimony to Congress in “Bankruptcy Court Decisions” that allowing bankruptcy judges to modify first mortgages for individuals by amending the Bankruptcy Code to permit “cramdowns” would generate serious risks and many unintended consequences. You indicate that one of the unintended consequences is that the option of bankruptcy might lead millions of borrowers to stop paying their mortgages.

As an experienced bankruptcy attorney who represents individuals and businesses and has filed over 500 personal bankruptcies, I can tell you that this argument is misguided and inaccurate. Filing for personal bankruptcy is a serious consequence for an individual, as is stopping payment on their mortgages, which may lead to a bankruptcy. In my experience, which is considerable, people are reluctant to file for personal bankruptcy, and when they do, they do it as a last resort. Based on the decline in the value of residential real estate during this recession, the best and only way to help individual borrowers retain their homes is to allow bankruptcy judges to “cramdown” or modify first mortgages for individuals in Chapter 13 bankruptcy.

You should note, if you would have studied bankruptcy law and practice, that the Bankruptcy Code presently permits bankruptcy judges to modify second mortgages on individual residences and mortgages on investment, business and vacation properties. All of these loan modifications or “cramdowns” have not resulted in millions of Americans stopping payment on their mortgages or filing for bankruptcy and it has not created economic uncertainty. There have been many attempts by the state and federal governments to assist homeowners who are in danger of foreclosure; however, none of them have yet worked.

The proven way to prevent foreclosures that works is bankruptcy, whether it be Chapter 7 or Chapter 13-and it would be even more effective if Congress would allow bankruptcy judges to modify first mortgages. Your attention to this matter is appreciated.