Bankruptcy Cram-Down Would Deliver $17 Million Benefit to Federal Goverment

According to a cost estimate released Thursday by the Congressional Budget Office, enactment of a bill seeking to amend federal bankruptcy law to allow for principal cram-downs on primary residences would deliver $17 million in cost savings and additional revenues to the federal government.

The CBO estimated that HR 3609, the Emergency Home Ownership and Mortgage Equity Protection Act of 2007, would reduce direct spending by $10 million and increase government revenue by $7 million between 2009 and 2018. The report also estimates that while the bill would add to court costs, the CBO believes that such costs “would not be significant.”

While costs to the public sector aren’t expected to be signficant — and, indeed, the bill is expected to benefit the federal government — costs to the private sector may be. The CBO said that while the bill would impose additional costs on businesses, it was unclear if the aggregate costs of complying with the bill’s provisions would exceed a dollar threshold set by the Unfunded Mandates Reform Act, or UMRA.

UMRA was put into place in 1995 to ensure that Congressional leaders do not enact bills that place a costly burden on state-level agencies or private-sector parties without associated funding support.

The CBO said that it could not estimate the cost of private-sector mandates “because of uncertainty about the number of bankruptcy plans that would be modified and how these changes would affect holders of secured claims.”

The debate over whether bankruptcy cram-downs should be allowed has been an intense one; the fact that the proposed bill is likely to drive incremental revenue for the government, while costing the private sector an indeterminable amount of money, is likely to be an area of contention as the bill is debated at varying Congressional levels in the months ahead.

The complete report by the Congressional Budget Office is available here.