I 
112TH CONGRESS 
2D SESSION 
H. R. 4058 
To amend title 11 of the United States Code to provide authority to modify 
certain mortgages on principal residences of debtors to prevent fore-
closure; and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
FEBRUARY 16, 2012 
Mr. BLUMENAUER introduced the following bill; which was referred to the 
Committee on the Judiciary, and in addition to the Committees on Finan-
cial Services and Veterans’ Affairs, for a period to be subsequently deter-
mined by the Speaker, in each case for consideration of such provisions 
as fall within the jurisdiction of the committee concerned 
A BILL 
To amend title 11 of the United States Code to provide 
authority to modify certain mortgages on principal resi-
dences of debtors to prevent foreclosure; and for other 
purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Bankruptcy Equity 
Act of 2012’’. 
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TITLE 
I—AMENDMENTS 
TO 
TITLE 11 OF THE UNITED 
STATES CODE 
SEC. 101. ELIGIBILITY FOR RELIEF. 
Section 109 of title 11, United States Code, is 
amended— 
(1) by adding at the end of subsection (e) the 
following: ‘‘For purposes of this subsection, the com-
putation of debts shall not include the secured or 
unsecured portions of— 
‘‘(1) debts secured by the debtor’s principal res-
idence if the current value of that residence is less 
than the secured debt limit; or 
‘‘(2) debts secured or formerly secured by real 
property that was the debtor’s principal residence 
that was sold in foreclosure or that the debtor sur-
rendered to the creditor if the current value of such 
real property is less than the secured debt limit.’’; 
and 
(2) by adding at the end of subsection (h) the 
following: 
‘‘(5) The requirements of paragraph (1) shall not 
apply in a case under chapter 13 with respect to a debtor 
who submits to the court a certification that the debtor 
has received notice that the holder of a claim secured by 
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the debtor’s principal residence may commence a fore-
closure on the debtor’s principal residence.’’. 
SEC. 102. AUTHORITY TO MODIFY CERTAIN MORTGAGES. 
Section 1322 of title 11, United States Code, is 
amended— 
(1) in subsection (b)— 
(A) by redesignating paragraph (11) as 
paragraph (12), 
(B) in paragraph (10) by striking ‘‘and’’ at 
the end, and 
(C) by inserting after paragraph (10) the 
following: 
‘‘(11) notwithstanding paragraph (2) and other-
wise applicable nonbankruptcy law, with respect to a 
claim for a loan originated before the effective date 
of this paragraph and secured by a security interest 
in the debtor’s principal residence that is the subject 
of a notice that a foreclosure may be commenced 
with respect to such loan, modify the rights of the 
holder of such claim (and the rights of the holder of 
any claim secured by a subordinate security interest 
in such residence)— 
‘‘(A) by providing for payment of the 
amount of the allowed secured claim as deter-
mined under section 506(a)(1); 
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tled ‘Average Prime Offer Rates—Fixed’, 
plus a reasonable premium for risk; and 
‘‘(D) by providing for payments of such 
modified loan directly to the holder of the 
claim; and’’, and 
(2) by adding at the end the following: 
‘‘(g) A claim may be reduced under subsection 
(b)(11)(A) only on the condition that if the debtor sells 
the principal residence securing such claim, before receiv-
ing a discharge under this chapter and receives net pro-
ceeds from the sale of such residence, then the debtor 
agrees to pay to such holder— 
‘‘(1) if such residence is sold in the 1st year oc-
curring after the effective date of the plan, 80 per-
cent of the amount of the difference between the 
sales price and the amount of such claim (plus costs 
of sale and improvements), but not to exceed the 
amount of the allowed secured claim determined as 
if such claim had not been reduced under such sub-
section; 
‘‘(2) if such residence is sold in the 2d year oc-
curring after the effective date of the plan, 60 per-
cent of the amount of the difference between the 
sales price and the amount of such claim (plus costs 
of sale and improvements), but not to exceed the 
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amount of the allowed secured claim determined as 
if such claim had not been reduced under such sub-
section; 
‘‘(3) if such residence is sold in the 3d year oc-
curring after the effective date of the plan, 40 per-
cent of the amount of the difference between the 
sales price and the amount of such claim (plus costs 
of sale and improvements), but not to exceed the 
amount of the allowed secured claim determined as 
if such claim had not been reduced under such sub-
section; and 
‘‘(4) if such residence is sold in the 4th year oc-
curring after the effective date of the plan, 20 per-
cent of the amount of the difference between the 
sales price and the amount of such claim (plus costs 
of sale and improvements), but not to exceed the 
amount of the allowed secured claim determined as 
if such claim had not been reduced under such sub-
section. 
‘‘(h) With respect to a claim of the kind described 
in subsection (b)(11), the plan may not contain a modi-
fication under the authority of subsection (b)(11)— 
‘‘(1) in a case commenced under this chapter 
after the expiration of the 15-day period beginning 
on the effective date of this subsection, unless— 
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‘‘(A) the debtor certifies that the debtor 
attempted, not less than 15 days before the 
commencement of the case, to contact the hold-
er of such claim (or the entity collecting pay-
ments on behalf of such holder) regarding 
modification of the loan that is the subject of 
such claim; or 
‘‘(B) a foreclosure sale is scheduled to 
occur on a date in the 30-day period beginning 
on the date the case is commenced; and 
‘‘(2) in any other case pending under this chap-
ter, unless the debtor certifies that the debtor at-
tempted to contact the holder of such claim (or the 
entity collecting payments on behalf of such holder) 
regarding modification of the loan that is the subject 
of such claim, before— 
‘‘(A) filing a plan under section 1321 that 
contains a modification under the authority of 
subsection (b)(11); or 
‘‘(B) modifying a plan under section 1323 
or 1329 to contain a modification under the au-
thority of subsection (b)(11).’’. 
SEC. 103. COMBATING EXCESSIVE FEES. 
Section 1322(c) of title 11, the United States Code, 
is amended— 
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(1) in paragraph (1) by striking ‘‘and’’ at the 
end, 
(2) in paragraph (2) by striking the period at 
the end and inserting a semicolon, and 
(3) by adding at the end the following: 
‘‘(3) the debtor, the debtor’s property, and 
property of the estate are not liable for a fee, cost, 
or charge that is incurred while the case is pending 
and arises from a debt that is secured by the debt-
or’s principal residence except to the extent that— 
‘‘(A) the holder of the claim for such debt 
files with the court (annually or, in order to 
permit filing consistent with clause (ii), at such 
more frequent periodicity as the court deter-
mines necessary) notice of such fee, cost, or 
charge before the earlier of— 
‘‘(i) 1 year after such fee, cost, or 
charge is incurred; or 
‘‘(ii) 60 days before the closing of the 
case; and 
‘‘(B) such fee, cost, or charge— 
‘‘(i) is lawful under applicable non-
bankruptcy law, reasonable, and provided 
for in the applicable security agreement; 
and 
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‘‘(ii) is secured by property the value 
of which is greater than the amount of 
such claim, including such fee, cost, or 
charge; 
‘‘(4) the failure of a party to give notice de-
scribed in paragraph (3) shall be deemed a waiver 
of any claim for fees, costs, or charges described in 
paragraph (3) for all purposes, and any attempt to 
collect such fees, costs, or charges shall constitute a 
violation of section 524(a)(2) or, if the violation oc-
curs before the date of discharge, of section 362(a); 
and 
‘‘(5) a plan may provide for the waiver of any 
prepayment penalty on a claim secured by the debt-
or’s principal residence.’’. 
SEC. 104. CONFIRMATION OF PLAN. 
Section 1325(a) of title 11, the United States Code, 
is amended— 
(1) in paragraph (8) by striking ‘‘and’’ at the 
end, 
(2) in paragraph (9) by striking the period at 
the end and inserting a semicolon, and 
(3) by inserting after paragraph (9) the fol-
lowing: 
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‘‘(10) notwithstanding subclause (I) of para-
graph (5)(B)(i), the plan provides that the holder of 
a claim whose rights are modified pursuant to sec-
tion 1322(b)(11) retain the lien until the later of— 
‘‘(A) the payment of such holder’s allowed 
secured claim; or 
‘‘(B) discharge under section 1328; and 
‘‘(11) the plan modifies a claim in accordance 
with section 1322(b)(11), and the court finds that 
such modification is in good faith.’’. 
SEC. 105. DISCHARGE. 
Section 1328 of title 11, the United States Code, is 
amended— 
(1) in subsection (a)— 
(A) by inserting ‘‘(other than payments to 
holders of claims whose rights are modified 
under section 1322(b)(11)’’ after ‘‘paid’’ the 
1st place it appears, and 
(B) in paragraph (1) by inserting ‘‘or, to 
the extent of the unpaid portion of an allowed 
secured 
claim, 
provided 
for 
in 
section 
1322(b)(11)’’ after ‘‘1322(b)(5)’’, and 
(2) in subsection (c)(1) by inserting ‘‘or, to the 
extent of the unpaid portion of an allowed secured 
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claim, provided for in section 1322(b)(11)’’ after 
‘‘1322(b)(5)’’. 
SEC. 106. EFFECTIVE DATE; APPLICATION OF AMEND-
MENTS. 
(a) EFFECTIVE DATE.—Except as provided in sub-
section (b), this title and the amendments made by this 
title shall take effect on the date of the enactment of this 
Act. 
(b) APPLICATION OF AMENDMENTS.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this title shall 
apply with respect to cases commenced under title 
11 of the United States Code before, on, or after the 
date of the enactment of this Act. 
(2) LIMITATION.—Paragraph (1) shall not 
apply with respect to cases closed under title 11 of 
the United States Code as of the date of the enact-
ment of this Act that are neither pending on appeal 
in, nor appealable to, any court of the United 
States. 
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TITLE II—RELATED MORTGAGE 
MODIFICATION PROVISIONS 
SEC. 201. ADJUSTMENTS AS A RESULT OF MODIFICATION 
IN BANKRUPTCY OF HOUSING LOANS GUAR-
ANTEED BY THE DEPARTMENT OF VETERANS 
AFFAIRS. 
(a) IN GENERAL.—Section 3732 of title 38, United 
States Code, is amended— 
(1) in subsection (a)— 
(A) by redesignating paragraph (2) as sub-
paragraph (A) of paragraph (2), and 
(2) by inserting after subparagraph (A) the fol-
lowing new subparagraph: 
‘‘(B) In the event that a housing loan 
guaranteed under this chapter is modified 
under the authority provided under section 
1322(b) of title 11, United States Code, the 
Secretary may pay the holder of the obligation 
the unpaid balance of the obligation due as of 
the date of the filing of the petition under title 
11, United States Code, plus accrued interest, 
but only upon the assignment, transfer, and de-
livery to the Secretary (in a form and manner 
satisfactory to the Secretary) of all rights, in-
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terest, claims, evidence, and records with re-
spect to the housing loan.’’. 
(b) MATURITY OF HOUSING LOANS.—Paragraph (1) 
of section (d) of section 3703 of title 38, United States 
Code, is amended by inserting ‘‘at the time of origination’’ 
after ‘‘loan’’. 
(c) IMPLEMENTATION.—The Secretary of Veterans 
Affairs may implement the amendments made by this sec-
tion through notice, procedure notice, or administrative 
notice. 
SEC. 202. PAYMENT OF FHA MORTGAGE INSURANCE BENE-
FITS. 
(a) IN GENERAL.—Subsection (a) of section 204 of 
the National Housing Act (12 U.S.C. 1710(a)) is amend-
ed— 
(1) in paragraph (1), by adding at the end the 
following new subparagraph: 
‘‘(E) MODIFICATION
OF
MORTGAGE
IN 
BANKRUPTCY.— 
‘‘(i) AUTHORITY.—If an order is en-
tered under the authority provided under 
section 1322(b) of title 11, United States 
Code, that (a) determines the amount of 
an allowed secured claim under a mortgage 
in accordance with section 506(a)(1) of 
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title 11, United States Code, and the 
amount of such allowed secured claim is 
less than the amount due under the mort-
gage as of the date of the filing of the peti-
tion under title 11, United States Code, or 
(b) reduces the interest to be paid under a 
mortgage in accordance with section 1325 
of such title, the Secretary may pay insur-
ance benefits for the mortgage as follows: 
‘‘(I) FULL
PAYMENT
AND
AS-
SIGNMENT.—The Secretary may pay 
the insurance benefits for the mort-
gage, but only upon the assignment, 
transfer, and delivery to the Secretary 
of all rights, interest, claims, evidence, 
and records with respect to the mort-
gage specified in clauses (i) through 
(iv) of paragraph (1)(A). The insur-
ance benefits shall be paid in the 
amount equal to the original principal 
obligation of the mortgage (with such 
additions and deductions as the Sec-
retary determines are appropriate) 
which was unpaid upon the date of 
the filing of by the mortgagor of the 
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petition under title 11 of the United 
States Code. Nothing in this Act may 
be construed to prevent the Secretary 
from providing insurance under this 
title for a mortgage that has pre-
viously been assigned to the Secretary 
under this subclause. The decision of 
whether to utilize the authority under 
this subclause for payment and as-
signment shall be at the election of 
the mortgagee, subject to such terms 
and conditions as the Secretary may 
establish. 
‘‘(II) ASSIGNMENT
OF
UNSE-
CURED
CLAIM.—The Secretary may 
make a partial payment of the insur-
ance benefits for any unsecured claim 
under the mortgage, but only upon 
the assignment to the Secretary of 
any unsecured claim of the mortgagee 
against the mortgagor or others aris-
ing out of such order. Such assign-
ment shall be deemed valid irrespec-
tive of whether such claim has been or 
will be discharged under title 11 of 
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the United States Code. The insur-
ance benefits shall be paid in the 
amount specified in subclause (I) of 
this clause, as such amount is reduced 
by the amount of the allowed secured 
claim. Such allowed secured claim 
shall continue to be insured under sec-
tion 203. 
‘‘(III) INTEREST
PAYMENTS.— 
The Secretary may make periodic pay-
ments, or a one-time payment, of in-
surance benefits for interest payments 
that are reduced pursuant to such 
order, as determined by the Secretary, 
but only upon assignment to the Sec-
retary of all rights and interest re-
lated to such payments. 
‘‘(ii) DELIVERY
OF
EVIDENCE
OF 
ENTRY OF ORDER.—Notwithstanding any 
other provision of this paragraph, no insur-
ance benefits may be paid pursuant to this 
subparagraph for a mortgage before deliv-
ery to the Secretary of evidence of the 
entry of the order issued pursuant to title 
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