Specifically Chapter 13 bankruptcy allows the person filing to work-out a repayment plan that extends over a 36 to 60 month period. The amount of the repayment is based on the income of the "petitioner" and can substantially eliminate certain debt. But this debt is only non-exempt items which are not fully collateralized by an asset, such as an auto or a home.
What happens is the petitioner petitions the court to accept his Chapter 13 filing. It does not have to be accepted but if it is accepted, the court appoints a trustee who determines a repayment schedule. The petition does not have to be accepted if the petitioner filed too recently or if his assets don't qualify. If accepted, the trustee begins his work of determining how the monies from the homeowner will be distributed to his creditors. As soon as the filing was accepted, the petitioner (homeowner) no longer has the ability to sell any of his assets without the trustee's authorization. Assuming you want to stop your foreclosure by filing bankruptcy, you will temporarily lose your ability to sell your home without the trustee's approval.
If you find a buyer, the trustee will allow the sale, but only if he can be convinced the price is at fair market value (FMV). He needs an appraisal, because homeowners could sell their assets below market value prior to their filing. It is the trustee's responsibility to make sure this doesn't happen by checking bank statements and the public records back six months and sometimes longer. If such a sale took place, the trustee could have the deed voided and the sale reversed. This would be very inconvenient and costly for the new homeowner and the petitioner.
Lenders know that many homeowners will file bankruptcy because attorneys' advertise so heavily and the homeowners do not understand the legal process. When the lender gets notice that a bankruptcy has been filed by the homeowner, they immediately instruct their attorney to petition the court for its release from the bankruptcy filing. A special hearing will be scheduled so there may be a few day's delay in your having to leave your home. However, when the court hears the lender's petition to release the home, the court will approve it. Now the homeowner has a bankruptcy to contend with, and his home will be back on track to be sold.
The larger consequence of the home being released is that the homeowner will have a bankruptcy on his credit report for ten years instead of seven years for a foreclosure. Actually, the bankruptcy is a matter of public record for 20 years and will stay on the individual's credit report under "Public Records" for up to 20 years. So bankruptcy is a short-term fix with very long-term consequences. Consult an attorney as soon as you believe bankruptcy may be an option for more complete information.
The legislation to grant judges to modify the loans of homeowners filing for bankruptcy has been approved by the House, but it is facing fierce opposition in the Senate as the powerful banking industry is using all its might to kill or water down the legislation aimed at mitigating the growth of foreclosure listings.
Lobbyists for the influential Mortgage Bankers Association, including chief MBA lobbyist Francis Creighton, argue that mortgage rates would increase by 1.5 percentage points if the legislation is enacted. Creighton cited the effect of higher mortgage rates in several cities, such as Baltimore which he says would make homeowners bear an additional payment of $1,533 per year on a mortgage of $128,218 and would lead to more foreclosure listings.
Banking lobbyists also said the legislation would lead to large numbers of homeowners filing for bankruptcy and would lead to another crisis in the credit markets.
The legislation passed by the House in March requires homeowners troubled by foreclosure listings to first work out a loan modification plan with their lenders before filing for Chapter 13 bankruptcy protection. Under bankruptcy protection, the judge can order the reduction of the loan principal to the home's market value and revise the mortgage rate to equal the rate offered for prime loans.
A mortgage loan amounting to $300,000, for example, on a home that has declined in value to $230,000 would be reduced to $230,000, with the difference of $70,000 considered as unsecured debt to be repaid with disposable income.
The bankruptcy legislation would be applied only to mortgages already existing when the law was enacted, and would not be applied to new loans at risk of being included in foreclosure listings.
Bankruptcy reform seemed to have gained momentum in the first months of the year and seemed to have been favoring troubled homeowners, but when the legislation reached the Senate, reform efforts seemed to have slowed down as bankers pushed on with their anti-reform campaign and as conservatives expressed their intention to limit the legislation to subprime loans in danger of being added to foreclosure listings.
Robert Lawless, a professor of law at the University of Illinois, who is concerned about the effects of Illinois foreclosures and other state foreclosures on families and on the economy, argued against the bankers' contentions, saying the banking group is using scare tactics.
David Leibowitz, a bankruptcy lawyer in Illinois, asserted that the government should offer to ordinary homeowners troubled by foreclosure listings what it has been offering to rich real estate businesspeople like Donald Trump.
Both Dave Dinkel & Joseph Smith are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Dave Dinkel has sinced written about articles on various topics from Foreclosure Help, Internet Marketing and Advertising Guide. About Author: Dave Dinkel is the author of "32 Ways to Quickly Stop Foreclosure" and has been helping foreclosure victims for nearly 33 years. If you are facing foreclosure, visit. Dave Dinkel's top article generates over 33100 views. to your Favourites.
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