Last year, bankruptcy filings reached the highest level since 2005 when bankruptcy reform laws were enacted. Whether due to unemployment, unforeseen medical expenses or other circumstances, more than 1.5 million Americans filed for personal bankruptcy last year.
While there can be any number of reasons that people file for bankruptcy, it is one way for those experiencing financial difficulties to get their lives in order. It is also an effective way to save a home from foreclosure. According to RealtyTrac, a leading foreclosure tracking company, nearly 2.9 million properties received a foreclosure filing in 2010, up 2 percent from 2009 levels.
Chapter 13 and Second Mortgages
Chapter 13 bankruptcy allows a debtor to reorganize their debts and repay them over a three- to five-year period. It also provides consumers with the opportunity to catch up on delinquent mortgage payments and other debts. One of its more important benefits, however, is the ability to remove second mortgages on the home.
Second mortgages may be treated differently than first mortgages and be considered unsecured debt if there is no equity in the home to secure them. By reclassifying the debt as unsecured, it is possible to "strip" the second mortgage from the home at the end of the Chapter 13 repayment plan.
Prior to the downturn of the housing market, this option was used less frequently because many homes maintained their equity. But due to the economy and its effect on home values, many homeowners are left with properties worth significantly less than what is owed on them, making this an appealing aspect of Chapter 13 bankruptcy.
This is a huge relief to many homeowners, allowing many to keep their homes. Because the amount they owe on the home has been drastically reduced, the homeowner can put that income toward paying down other debts.
People find themselves in financial trouble for a variety of reasons. For those falling behind on mortgage payments, credit card bills and other debts, it is important to take action and not the problems grow.
