There has been a lot of talk about how to help the thousands of homeowners facing foreclosure as ARMs reset over the next 18 months. The following idea has been floating around and needs serious consideration:
When a person files bankruptcy, contracts can be modified or eliminated EXCEPT for the mortgage of the debtor's primary residence. If this portion of the law were changed to allow the interest rate to be frozen during the bankruptcy proceedings, three things could happen:
1. Only those people that need the help would get the help - means tested provisions of bankruptcy;
2. Only those people that are facing the loss of their primary residence would get help (investors would be out of luck);
3. Debtors would get assistance getting the rest of their debt situation straightened out so that when they came out of bankruptcy and the mortgage would resume it's normal rate of interest, they would be in better financial shape to handle it.