The House Judiciary Committee of the U.S. Congress recently approved a bill regarding mortgages and bankruptcy. The legislation (H.R. 3609) would enable homeowners with some mortgage types, including subprime and interest-only, to gain more favorable mortgage repayment terms as part of a chapter 13 bankruptcy.

According to a press release issued by Congress member Linda Sanchez’s office, the mortgage bankruptcy bill is intended to provide “relief” to homeowners affected by the crisis involving subprime and other unconventional loans. It was co-sponsored by Sanchez and North Carolina congressman Brad Miller. The bill applies to non-traditional mortgages which were initiated during the time between 2000 and the date when the bill comes into effect, if it is passed.

Sanchez was quoted as saying that the bill would provide assistance to “hundreds of thousands of families” at risk of having their homes foreclosed upon. However, she also stated that the bill incorporates “safeguards” designed to prevent it from benefiting those who simply bought a home which was more expensive than they could afford.

The press release indicates that this mortgage bankruptcy bill, if passed by Congress, would allow bankruptcy judges involved in chapter 13 bankruptcy cases to extend repayment periods, change the mortgage principal to be the same as the home’s true value, decrease excessive interest rates, and take other measures to enable continued home ownership by people with subprime and other unconventional mortgage types.

Chapter 13 is a type of bankruptcy which helps income earning individuals who are having difficulty making payments to repay some or all of their debts. According to uscourts.gov, chapter 13 cases involve arranging installment payments over a period of three to five years. It indicates that, in cases involving a mortgage, this can enable people to keep their homes, but they will still have to afford each of the mortgage payments under the new payment arrangement by the date at which they are due.

Overall, the mortgage bankruptcy bill in Congress would help home owners with unconventional mortgages who are facing bankruptcy to potentially avert foreclosure, by obtaining more reasonable mortgage payment terms. However, it will have to be approved by the full Congress and the President before it can take effect.

Subprime loans, which offer higher interest rates to home buyers with poor credit records, have come under increasing scrutiny in recent months due to high foreclosure rates and deceptive practices applied by some lenders.