Source: Renuka Rayasam, Kiplinger Letter

A wave of foreclosures will crest next year, forcing the new Congress to take up bankruptcy reform in 2009. At issue is a provision that prohibits judges from ordering banks to renegotiate mortgage terms with homeowners when they file for protection from creditors under bankruptcy or reorganization law.

Consumer and banking lobby groups battled over modifying this bankruptcy law for years. Even amid the latest crisis on Wall Street when banks are more vulnerable than at any time in recent memory, efforts failed to include a provision in the financial market rescue plan that would have required banks to write down mortgage terms under certain conditions.

“[Legislators] clearly decided this is not a priority,” at this time, says Ruth Susswein, deputy director of national priorities at Consumer Action. “But we will continue to push for it, because it is the only plan that actually doesn’t cost the taxpayers anything.”

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