A new American Bankruptcy Law Journal article by Harvard 3L Eric Nguyen shows that families with school-age children work harder to keep their homes in times of financial crisis, including by filing for bankruptcy. Nguyen's empirical analysis suggests that parents are often willing to make significant sacrifices--continuing to make hard-to-afford mortgage payments and filing for bankruptcy--in order to avoid uprooting their children and moving to cheaper housing.

As Prof. Warren showed in The Two-Income Trap, middle-class families often stretch their finances thin in order to buy homes in better school districts. With school qualities varying widely town to town--thanks to an education system that, despite stark disparities, continues to be funded by local property taxes--parents feel they must take these financial leaps in order to provide their children opportunities for success. Then, when these families hit by a crisis (say, when one parent loses a job or gets ill), those parents don't have a financial buffer to get them through the rough time. The law should help these families.

Current law makes it hard for families to hang on to their homes in bankruptcy. Banks retain absolute discretion to confiscate homes from bankrupt families who can no longer make their full mortgage payments. At the same time, the law does make it possible to restructure financial arrangements so people in bankruptcy can hang on to luxury items like boats and vacation homes. The law provides some forgiveness in bankruptcy, but not to help families retain the primary thing that will preserve opportunities for their children: access to a good school.

This Congress, Senator Durbin introduced a bill that could change this. The Helping Families Save Their Homes Act would provide homeowners the opportunity to ask a judge to modify the terms of their mortgages--getting lower interest rates and monthly payments--to avoid foreclosure. The Senate Judiciary Committee sent the bill to the full Senate in April, but the Senate has not yet acted. Senate Majority Leader Harry Reid's Foreclosure Prevention Act includes this bill's substantive provisions and currently awaits consideration by the Senate.