Homeowners may have a better chance of saving their homes using the bankruptcy code thanks to Citigroup's (NYSE: C) turnaround on a process called cram-down. If cram-down becomes an option for bankruptcy judges, they can alter the terms of mortgages (often reducing the amount of principal due) to make it affordable for someone to stay in their home. Other changes could include reducing a loan's interest rate or extending its length.

Democrats have called for adding cram-downs to the bankruptcy code since 2007, but the banking industry has fought it. Now with banks taking so much bailout money, it's time to pay the piper. Senators Dick Durbin (D-Ill), Chris Dodd (D-Conn) and Charles Schumer (D-NY) have led the fight for change in the bankruptcy code. Since Citigroup agreed to the bankruptcy law change with certain conditions other banks have called Schumer promising to jump on board.

Now that there appears to be an agreement with the banks, the Democrats plan to add a cram-down provision to the economic stimulus plan moving through Congress. There will be some limits though. If the law passes, only mortgages entered into prior to the date of enactment of the bill will be eligible for cram-down. Homeowners also will need the show that they tried to negotiate with their mortgage holder. They must contact their banker at least 10 days before filing for bankruptcy to give the bank an opportunity to negotiate.