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For an ever-increasing number of citizens in this recession, filing for bankruptcy becomes a way of managing the mounting financial crisis, even when it means losing the family home.  It really becomes a matter of survival for faced with this decision.

New legislation proposed in Congress includes provisions that allow bankruptcy judges to cut the principal and interest rates on first-mortgages as well as extend the terms of repayment.  The measure, known as the "The Judicial Mortgage Modification Bill," was approved on March 5th, 2009 by The House of Representatives.  Senate approval is all that stands in the way of making this bill - law.

Still, for too many people, time is of the essence and waiting for this bill to become law is not an option.  They need to obtain relief through the existing bankruptcy system, even though the ability to impact mortgage debt is severely limited - for those trying to keep their homes.  Filing for bankruptcy can delay foreclosure proceedings, but barring a change in circumstances, it is only a matter of time before that process takes hold.

Across the country there has been a 33% rise in personal bankruptcies last year, totaling over 1-million filings, according to the American Bankruptcy Institute . The most common types of personal bankruptcy filings are Chapter 7 and Chapter 13.

Chapter 7 proceedings — virtually wipe out unsecured consumer debt, such as credit card debt, a leading cause of bankruptcy, along with divorce,  unemployment, and medical conditions. Chapter 7 offers mortgage relief only for people who are prepared to surrender their home.

Chapter 13 bankruptcy proceedings, which also can help people reduce, if not totally eliminate, credit card and some other types of debt, - has provisions in place to allow people to get current on overdue mortgage payments.  It does not currently allow for a reduction in principal, interest, or the length of the loan for  first mortgages.  A person will still be required to repay everything.  However, it helps people make up overdue payments, usually over 3- to 5-years, by paying an additional amount with each regular mortgage payment. Please note:  You must  establish, in advance, you have sufficient income to handle such an arrangement.

Consumer advocates like ACORN , are lobbying hard in support of the mortgage relief legislation now before Congress. ACORN claims that banks have not acted reasonably in renegotiating mortgages in the current financial crisis. However, many banks and other financial institutions claim that the legislation would unfairly change mortgage contracts at their expense.  This, at a time when they’re in serious financial trouble of their own.