As Foreclosures Mount, More Homeowners Choosing Bankruptcy to Keep Their Homes

Published Thursday, August 6, 2009 @ 1:21 pm

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The month of July 2009 saw yet another increase in the number of consumer bankruptcies filed in the U.S., as low employment and high consumer debt continues to be a toxic combination throughout most of the country with only little signs that an antidote can be found. The number of filings, 126,434, was a 34.3 percent increase from the same month in 2009 and 8.7 percent increase from June, 2009.

Most experts agree that the rapidly decreasing number of jobs is in direct correlation with the consistent increases in bankruptcies every month. Also contributing to the increase is the so-far ineffective Home Affordable Modification Program. According to a recent report released by the Treasury Department, the modification program has only benefited 9% of eligible homeowners. When loan modification efforts fail, many homeowners turn to Chapter 13 bankruptcy, which can immediately stop a foreclosure and allows the homeowner the opportunity to catch up on missed payments over a 5 year plan.

In each of the last three months, more than 20 percent of those who have filed cited they did so to avoid foreclosure. The data was compiled by the Consumer Credit Counseling Service of Greater Atlanta. The organization, a nonprofit credit counseling service, collected data from individuals from April to June and determined that counseling was not going to be enough to assist them in preventing foreclosure.

Even with banks being pressured by federal government (and the national court of public opinion) to work with mortgage holders, the majority of home owners are frightened by the chance they could lose the roof over their heads. This alarming trend also demonstrates, once again, that the White House is not doing nearly enough to promote or educate America on its Making Home Affordable program, which provides financial incentives for banks and mortgage lenders to alleviate the rate at which they foreclose on homes.

The report is also further evidence that a Bankruptcy Cramdown Bill is more critical than ever. A proposed legislative action that has recently shown renewed signs of life, the bill would allow bankruptcy judges to alter, or cramdown, a homeowner’s mortgage in conjunction with their approved bankruptcy plan.

As we discussed on the blog previously, Senator Dick Durbin from Illinois is fighting to keep the bill breathing, going so far as to recently issue many in the lending industry a three-month ultimatum to do more in stemming the tide of foreclosures or see renewed vigor in Congress to revive cramdown legislature. Financial Services Committee Chairman Barney Frank from Massachusetts, a lightening rod for all things controversial in government, is also pushing hard to bring the bill back to life.

Oddly enough, the cramdown battle is being waged between powerful Senate Democrats and President Obama. Meanwhile, Americans’ home loans flap helplessly in the wind of the recession.

If you are behind on your mortgage, bankruptcy can help you stay in your home. In North Carolina, contact the Law Offices of John T. Orcutt for a free initial debt consultation. 1-800-899-1414.

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