Turning To Bankruptcy To Save A Home
Are homeowners who are in foreclosure or at risk of losing their homes increasingly filing for bankruptcy as a last ditch effort to save their homes?
The Warren Group recently reported that bankruptcy filings in Connecticut jumped 20 percent in the first half of the year compared to the same period in 2009. The increase in bankruptcy filings comes as foreclosures have jumped 37 percent statewide. There were 3,010 foreclosures in the first five months of the year compared to 2,191 during the same months last year, according to The Warren Group.
It doesn’t necessarily mean the two are tied together. After all, renters can file for bankruptcy protection too.
But filing for bankruptcy protection can temporarily halt the foreclosure process, and can also give homeowners some more money and time to catch up with missed mortgage payments. Attorneys often recommend it to clients who are desperate to save their homes. With a Chapter 7 filing, unsecured debt – like credit card bills – is dismissed. But consumers are still on the hook for mortgages, which are secured debt.
Filing for bankruptcy protection, can help a homeowner who has steady employment by reducing the number of bills they have to pay, ultimately freeing up cash for monthly mortgage payments.
With a Chapter 13 filing, a consumer can repair their finances and come up with a court-approved payment plan – usually over three to five years. In such a filing, a judge can eliminate second mortgages, such as home equity loans, if a home value has dipped below the first mortgage amount.