For homeowners facing foreclosure, filing for bankruptcy is one of the options that can be explored. But based on the assessment of the Mortgage Bankers Association, choosing to do might have a significant impact on lending in the long run.
When a troubled borrower can no longer keep up with his mortgage payment and has suffered from a crippling financial loss such as unemployment, medical emergency or divorce, it is not unusual for him to think of bankruptcy as the best way to stop foreclosure.
If you are also considering such option, you should first be aware of some facts about bankruptcy. For starters, you should know that bankruptcy judges can reduce or even eliminate some of your debts but the total mortgage debt you owe and the existing interest rate cannot be altered. This means, that sooner or later, you will still have to deal with the entire amount you owe in mortgage loan.
Democrats and consumer advocates have been rallying behind the revision of existing bankruptcy laws in order to benefit distressed homeowners. If certain adjustments and changes could be made, it would become easier for homeowners to be free from their mortgage debts.
But for the Republicans and the entire mortgage industry, such change might drive interest rates up since lenders will be unwilling to take the risks involved. According to the MBA, mortgage rates could go up by as much as 1.5 percent.
For some experts, a bankruptcy filing can only be beneficial if it would allow you to eliminate some of your debts and help you focus on your mortgage payments. On the other hand, if you are just hoping that your mortgage can be reduced or eliminated, then you are looking at the wrong option. You might want to consider a loan modification instead.
It should be clear to troubled borrowers that a bankruptcy option can only be explored if you are only planning to walk away from your mortgage debt even if you have an above average income and could actually afford it. Under the present bankruptcy law, you can only declare a Chapter 7 bankruptcy under special circumstances.
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October 22nd, 2008 at 2:33 pm
Interesting. For individuals, we have Chapter 13 Bankruptcy, or reorganization. For Corporations, it is called Chapter 11. In a Chapter 11, the Judge has much greater powers. For example, in Chapter 11 he can direct a mortgage lender to provide long term financing at a competitive interest rate; thus changing or modifying the mortgage for the benefit of the borrower. In Chapter 13, for the working man, this cannot happen. In Chapter 11 the bankruptcy judge can arbitrarily eliminate much of unsecured creditors balance due and then force that creditor to accept payments over a long-term at a low rate. Again, individuals do not have this. Want to make it a level playing field? Give individuals the same rights under Chapter 13 that corporations have under Chapter 11 Reorganizations.
October 29th, 2008 at 10:58 am
[...] One of the reasons being cited for the worsening of the foreclosure crisis is the refusal of the lenders to work with their borrowers, choosing instead to proceed with the foreclosure filing. But their growing inventory of foreclosure homes are making them think twice especially with most of the large lenders filing for bankruptcy and the price of every foreclosure costing them as much as $50,000. [...]