Study Shows Bankruptcy Helps Prevent Foreclosure, But Some Banks Worse Than Others
The ability to save one’s home from foreclosure varies widely between homeowners who file for bankruptcy and those who do not, says a new research study from the UNC Center for Community Capital.
Only about 8% of homeowners in foreclosure filed for bankruptcy. But homeowners who filed for either type of bankruptcy, Chapter 7 or Chapter 13, were more likely to stop the foreclosures and remain in their homes.
Although Chapter 13 bankruptcy, which allows for repayment of mortgage debts in a long-term payment plan, was found effective for helping prevent foreclosure, Chapter 7 bankruptcy was also found effective because it relieves homeowners of having to pay for other competing debts such as credit cards.
The study found the nationwide average time from initiation of foreclosure to the actual sale to be approximately nine months.
Also, the particular bank or mortgage servicer handling the foreclosure process was found to greatly influence whether a house was foreclosed, although the study did not identify which mortgage servicers were best or worst. This gives empirical backing to the comparisons individual homeowners often make when observing the inadequate assistance offered by their own banks as compared to assistance offered to neighbors or friends with different banks.
This is important because it shows what we frequently see when representing homeowners in Massachusetts with mortgage troubles – often, a bankruptcy is the best way to help prevent a foreclosure, as the bankruptcy laws have special protections prohibiting banks from foreclosing, sometimes for a long term, or sometimes for a shorter term that is long enough to obtain a loan modification or eliminate other debt
The paper is titled “Bankruptcy During Foreclosure: Home Preservation Through Chapters 7 and 13” and is available for free.