Foreclosure 2009: A Stop at the Bankruptcy Donut Shop
Foreclosure 2009: A Stop at the Bankruptcy Donut Shop
Foreclosure and bankruptcy go together like coffee and donuts — there’s a selection to choose from to satisfy all tastes. The way things seem to be going, it looks like U.S. bankruptcy judges are going to be very busy this year, choosing among the glazed twists, the apple fritters and the rest of the donut case.
Consumer bankruptcy filings are already on the upswing this year, with 98,344 consumers filing for bankruptcy protection in February alone, up 11 percent from January and a 29 percent increase over the same time last year, according to the American Bankruptcy Institute.
Foreclosure levels are also expected to increase further in 2009, according to RealtyTrac, after rising 81 percent in 2008 over the level reported for the previous year.
“We expect at least 1.4 million bankruptcies this year, even more if Congress changes the law to permit residential home mortgages to be modified in Chapter 13,” said ABI Executive Director Samuel J. Gerdano.
Of the February numbers, 30.2 percent of consumers chose to file Chapter 13 from the current selection of donuts. Chapter 13 allows individuals with a regular income to put into motion a reorganization plan that allows them to repay their unsecured debt in whole or in part.
Part of President Obama’s foreclosure plan announced recently would allow bankruptcy judges the ability to lower the principal balance of a borrower’s mortgage, as well as the interest rate, and to modify the term of the loan in bankruptcy cases where the borrower is in foreclosure.
Congressional Democrats are currently working on a compromise to restrict the impact of this legislation by requiring the homeowner to share any profit from the eventual sale of the home with the lender, according to The Washington Post.
It’s no surprise that bankruptcies are on their way up, considering the rise in unemployment nationwide. During the recession of the early 1990s the steady flow of rising bankruptcies, unemployment and foreclosures were all in alignment. However, back then interest rates were also much higher than they are in our current economic environment.
What’s your preference? Should judges be allowed to pick and choose which foreclosure cases get modified?
We’d like to hear from you.