Bankruptcy/Loan Modification Options for Homeowners
During the fourth quarter of 2009 and for the seventh consecutive quarter overall, mortgage delinquencies rose, this time increasing to 13.6 percent of all mortgages. The decrease in current/performing mortgages was this past quarter identified as being due to a large jump in mortgages 90 or more days overdue. Seriously delinquent mortgages now make up 4.7 percent of all mortgages.
Surprisingly, and most worrisome to many market observers, is the spike among prime borrowers. These borrowers were thought to be stable and not generally a concern when the sub-prime market bubble burst. And while prime borrowers had given little cause for concern, the 16.5 percent increase in mortgages more than 90 days past due has changed that.
Many of these past-due homes will eventually find their way into foreclosure proceedings. While new foreclosures have dropped recently (312,529 foreclosure actions in the most recent reporting period, down 15.4 percent from the previous quarter), foreclosures are still higher than a year ago.
What can a homeowner do when the monthly mortgage payments get too high, either because of a bad mortgage agreement or sudden income loss due to diminished hours or job loss? There are ways, although experts agree that programs such as HAMP (Home Affordable Modification Program) or other state-run programs will not save every delinquent homeowner. Even bankruptcy proceedings, although generally effective, may not be enough to allow a homeowner to keep his home out of foreclosure.
Declaring bankruptcy or, more specifically, Chapter 13 bankruptcy, however, is generally effective at giving a delinquent homeowner enough protection to stop foreclosure. There are, of course, a few requirements a homeowner must meet in order to file for chapter 13 bankruptcy.
Chapter 13 bankruptcy is a process by which a homeowner is able to reorganize his or her debts, then pay off those debts over the course of time. Often called the "wage earner's bankruptcy," it is so known because it requires the filer to maintain a steady income during the entire repayment period. As well, a homeowner qualifies for Chapter 13 proceedings if the person's income is sufficient to make all current payments as well as Chapter 13 payments, and he does not hold other debts in excess of the statutory caps. Making payments throughout the process will clean out old debt, but failure to continue making current payments will often lift the stay against the property, which could lead to the mortgage company starting foreclosure proceedings once again.
