The threat of home foreclosure is one reason many people consider filing for Chapter 7 or Chapter 13 bankruptcy. Now, the Obama Administration has proposed a new home refinancing plan that might relieve some homeowners. For others, however, California bankruptcy may still be the best option.

The new home refinancing plan would allow some homeowners to find relief - most eligible borrowers would save approximately $3,000 per year. This plan would be available to homeowners whose homes are underwater by 140 percent (the principal on their mortgage exceeds their home's value by 140 percent) and who have been unable to refinance due to their underwater mortgages. These homeowners - potentially 3.5 million borrowers - would now be able to take advantage of the lower rates available through refinancing.

The deal is also beneficial to mortgage companies, who would receive immunity from any new state servicing and originating claims (though not from criminal investigations). Homeowners could still pursue claims against these companies.

This plan comes after allegations that mortgage companies used robo-signing and other improper services to foreclosure on some homes. Yet, the home refinancing plan would not return homes to those who have already lost them to foreclosure.

States have only a few days to decide whether to sign on to the plan. According to CNN, the California Attorney General has considered rejecting the plan, saying that it is simply not good enough. Attorneys general from multiple states are concerned that agreeing to the deal would hurt their current investigations into the mortgage crisis. The plan would also have to pass Congress, which may be difficult given the history of past attempts.

Whether or not this home refinancing plan is approved in California, homeowners may still decide to file for Chapter 7 or Chapter 13 bankruptcy. Bankruptcy stops foreclosure and may allow debtors to repay their mortgage debt through manageable payments.

Source: CNN Money, "Finally, a foreclosure settlement (maybe)," Jennifer Liberto, Feb. 3, 2012.