The Dodd Plan: A Contract Clause Problem?

Section 11 of the Dodd bill seeks to minimize foreclosures by allowing bankruptcy judges to approve Chapter 13 bankruptcy plans that adjust the terms of residential mortgages in the debtor’s favor. Any Contract Clause experts willing to weigh in on this provision? There is no doubt that the section is lawful if applied prospectively, that is, to mortgages issued after the law goes into effect. But if it applies retroactively, as surely it is intended to, then creditors can assert a Contract Clause violation. The Supreme Court replaced the flat ban on this type of law with a balancing test during the Great Depression, under similar circumstances. Section 11 would pass the balancing test if interference with creditors’ contractual rights is sufficiently limited and/or the government interest is sufficiently great. But, however bad things might be now, we are not in a Great Depression or even (yet) a Mild Recession, and we have very different personnel on the Supreme Court.