September Updates on Bankruptcy Filings Show Highest Rate in a Long Time! But Is Help to Homeowners on the Way?
Preliminary reports of bankruptcy filings produced by Automated Access to Court Electronic Records (AACER) from the month of September show a continued trend of increases in bankruptcy filings.
From data released on creditslips.org, the raw numbers from September, 67,286 filings were actually lower than the 76,959 filings from August. However, the change represents an increase because the month of September featured numbers from only 19 business days, while the August filings had 23 business days.
Calculated on a filings per day basis, September filings were 3,541, compared to August filings of 3,346. This change represents a 5.8% increase in daily filings from month to month.It's certainly impossible to make sweeping generalizations from these month-to-month fluctuations, but try this fact on for size: for one month, 5.8% is the highest daily filing rate since the 2005 bankruptcy law was put into effect.
Last month, statistics released by the federal judiciary showed what its news release referred to as a "slow upward creep" in bankruptcy filings for the third quarter of the 2007 fiscal year. According to these numbers, bankruptcy filings among both personal and business entities increased by 35% from the same quarter in 2006.
For any period of the year, no matter how big or small, it's clear that bankruptcy filings are not decreasing, and lately not even slowing down!
Center for the Responsible Lending Offers Bankruptcy Law "Tweaks" to Save Homeowners!
In a new bill introduced to the House of Representatives, a "tweak" in the current bankruptcy law is proposed in order to help out homeowners. Though the actual change is small, consumer advocacy group the Center for Responsible Lending (CRL) believes that this one simple change could save the homes of as many as 600,000 homeowners from potential foreclosure.
According to current Chapter 13 bankruptcy laws regarding foreclosure, judges can only reduce mortgage debt owed on investment property or second homes, and not mortgages for primary residences.
However, the new House bill proposes that the bankruptcy judge for each individual case would have the option of reducing the mortgage debt on the primary residence as well. If, for example, a homeowner's property is worth less than what he owes, then the judge has the option to reduce the principal to match the home's current market value. The judge could also reduce the mortgage interest rate for the homeowner.
In this case, the remaining principal amount on the mortgage would then be treated as unsecured.
Of course, there are skeptics that such a provision in new legislation will actually be beneficial; many of course always believe that such changes will provide more incentive to file bankruptcy and actually lead to more bankruptcy filings.
However, the CRL suggests that knowing in advance that consumers may have the right to discharge this amount from their mortgage may encourage lenders to work with borrowers to modify terms in order to prevent bankruptcy or foreclosure from being necessary.
And many bankruptcy trustees and lawyers agree that this new change could slow down the tremendous upswing in foreclosures after the housing bubble of five years ago finally burst. Neither borrower nor lender wants to see a foreclosed home, because everyone loses in the long term.