Using the farm crisis of the early 1980s as a model, two economists have refuted several of the arguments against legislation that would permit bankruptcy judges to cramdown or stripdown of mortgage loans. Thomas J. Fitzpatrick IV and James B Thomson, economists with the Federal Reserve Bank of Cleveland, published their paper, Stripdowns and Bankruptcy: Lessons from Agricultural Bankruptcy Reform in the bank's Economic Commentary on its website. Allowing stripdowns of mortgages during Chapter 13 bankruptcy reorganization has been suggested as one way to deal with the housing crisis. If such legislation were passed, bankruptcy judges would be allowed to reduce the outstanding balance on a mortgage loan to the actual value of the underlying collateral, turning the remaining balance of the...(read more)

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