Will A Bankruptcy Increase My Chances Of Keeping My House Long Term? The Fed Weighs In!

There is no doubt that a Chapter 13 bankruptcy can stop a lender from continuing a proceeding to foreclose on your house.  But how does a bankruptcy affect the long term chances of keeping your house?

Well, the Federal Reserve has weighed in on this topic.

In a paper entitled:  “The Homeownership Experience of Households in Bankruptcy” the Federal Reserve Bank of Philadelphia along with the University of Pennsylvania Law School examined Chapter 13 bankruptcy filings by homeowners in New Castle County, Delaware area from August 2001 through August 2002.

The purpose of the study was to determine how often people lost their houses to foreclosure during and after bankruptcy, how much time elapsed from the time a bankruptcy was filed and foreclosure, and what did the house end up selling for as a result of the foreclosure proceeding.

Their findings?

• 30 percent of the bankruptcy filers had lost their home to foreclosure by October 2007;
• Filing bankruptcy allowed the filers to remain in their homes an average of 26 additional months; and,
• Once a foreclosure did happen, most lenders received 70 percent of what they were owed.

Based upon these findings the study somehow comes to the conclusion that there is no evidence that changes to the current bankruptcy system (allowing bankruptcy judges to restructure mortgages to protect homeowners) would have any actual affect on the number of foreclosures, only delay them.

However, the study fails to state the basis for its conclusion that changes to the bankruptcy laws would not help, stating instead that these homeowners would likely lose their houses “…under any circumstances, including expanded opportunities to modify contracts in court.”

To what opportunities to modify contracts in court is this study referring, since right now there are none.

Simply put, the study has no basis for this conclusion that court ordered modifications would not work since it has never been tried.

The credit industry, while at the same time holding out its hands for a $7,000,000,000.00 bailout, blocks attempts to give bankruptcy courts the ability to rework the loans made by predatory lenders and subprime lenders.

One conclusion of the study that I do agree with is its finding that your chances of successfully saving your house from foreclosure are increased by obtaining the services of an experienced bankruptcy attorney.

If you are going to file for bankruptcy, consider using one of the attorneys of the Mortgage Law Network.