722 Redemption for Homeowners?

Professor Porter has written about a proposal for homeowners who continue to struggle with second mortgages. These "junior lienholders" have been described as one of the leading reasons that mortgage modifications are falling apart for so many homeowners. I see it in my practice daily. Professor Porter suggests allowing chapter 7 filers to redeem under section 722 where they cannot now. Professor Porter writes" Current bankruptcy law permits debtors in chapter 7 bankruptcy to redeem personal property, such as cars, by paying the lienholder the value of the collateral. This redemption right exists regardless of the terms of the loan contract. The effect of the redemption is to remove the lien from the collateral. To redeem, a debtor must pay the secured party the amount of the allowed secured claim that is secured by such lien in full at the time of the redemption"


This means that an homeowner/debtor who has real estate, where they owe more on the 1st mortgage than the value of the home the debtor would file a motion under 722 may pay nothing! Motions would be scheduled quickly and help could be on its way.


Professor Porter thinks and I agree, that this could be the stick needed to force banks to negotiate where and when they will banks not now. Also it avoids the fight that have so far have yielded no results for a cram down amendment in chapter 13.