Filing Bankruptcy Stops Foreclosure

house        July bankruptcy filings are down 10% from last year, but up 5% from last month.  Possible reason?  My favorite industry, those mortgage companies, are at it again.

Foreclosures had been held down for years, because the banks knew the more homes they foreclosed, the more home prices would go down, not only costing them more money, but also driving more people into foreclosure.

So, the good news of the rebound in home prices has caused the mortgage companies to ramp up foreclosures again.

From the linked to Bloomberg story:

Banks are more willing to move to the final stage of foreclosure because there is sufficient demand and prices are improving, said Eric Workman of Tinley Park, Illinois-based Mack Cos., which aggregates single-family rental homes and resells them to individuals and institutional investors. U.S. home prices advanced almost 11 percent in the year through March, the biggest 12-month gain since April 2006, according to the S&P/Case-Shiller index of values in 20 cities.

and:

Given the shortage of inventory and rising home prices, banks have little motivation to hold back on any foreclosures, so homeowners who have not been making payments for several months or even years without a foreclosure notice should expect to see that notice coming,” Craig King, an agent at the Reno, Nevada-based Chase International brokerage, said in RealtyTrac’s report.

I hear of people going 3 years, or more, without making a payment and still no foreclosure.

This all depends on the value of your home, compared to the balance owed on the mortgage, and the changing policies of the mortgage companies.

So, there should be an increase in Chapter 13 bankruptcy filings.  Chapter 13 bankruptcy stops foreclosure, and allows you to make up the missed payments over time, up to 5 years.

It does NOT allow you to lower the principal balance, the total you owe, on your principal residence.  It does NOT allow you to lower the monthly payment.  In fact, it cost more money, because you have to make the regular monthly payment, plus something on the arrearage, plus a percentage to the Chapter 13 bankruptcy trustee.

So, if you lost your job, or your income went down, and now it is back up, or, you had some one time, non-recurring type expenses, like an illness, you might be a good candidate.

If your income went down, and is still down, it won’t work.  Chapter 13 is a payment plan bankruptcy, and the payment amount is based on what you have left out of your income after you pay your expenses.

It is a complicated process.  Do not try Chapter 13 bankruptcy at your home, consult a professional.

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