By James Donahue

A new bankruptcy bill designed to help debt-riddled, laid-off and struggling Americans stay in their homes has bogged down in the U.S. Senate.

The bill, known as the Helping Families Save Their Homes Act, has been dubbed as the “cram-down” bill because it allows judges to reduce or cram down the size of the mortgage, passed in the House 234-191.

The legislation has now been stalled in the Senate because some moderate Democrats are worried that the legislation will impose an undue hardship on banks and mortgage companies. They say the bill will make bankruptcy too attractive for homeowners facing foreclosure.

The Senate passed an amendment this week that requires that borrowers and lenders “make a good faith effort” to modify a mortgage before turning to bankruptcy court. But two Democratic Senators, Evan Bayh of Indiana and Mary Landrieu of Louisiana, are still not fully on board for passage of this revised bill.

The bill needs 60 votes of the Senate for passage. With nearly all Republicans expected to stand in their usual position of voting against anything the Obama Administration attempts to do, the loss of even these two Democratic votes is expected to put this important legislation in jeopardy.

An editorial by Nicholas von Hoffman in The Nation suggests that the nation’s banks are not in as much trouble as we are being told. He points to recent reports of large quarterly profits after getting billions in taxpayer bailout money, and a continued problem in lending for would-be consumers as evidence that the public is getting scammed.

But Senator Landrieu notes there is a difference between the large international financial institutions that reported these big profits and local community banks. She says she worries that the community banks are the ones that could be really hurt by this bill.

Landrieu has an interesting point. While we believe the community banks and credit unions have been careful in home mortgage lending practices and never got involved in the toxic loans that started this mess, now that millions of people are losing their jobs and living on unemployment, there could be a trickle-down effect. The bankruptcy cram-down of loans to these banks could have an impact.

The proper solution to this problem is for the bill to provide money to cover the losses to banks when mortgages are reduced by the courts..