When New York homeowners fall on hard times, and there’s some evidence that the market might go south again in the near future, they have a few options to handle the situation and keep their homes. They can try to get a mortgage modification or file chapter 13 bankruptcy. The big question for homeowners who want to stay in their homes is how well does bankruptcy prevent foreclosure. A research paper from the Federal Reserve Bank of Philadelphia’s working paper series provides an answer.
First, some background. The authors tracked 567 homeowners in New Castle County, Delaware, who filed chapter 13 bankruptcy in 2001 and 2002 until the end of their repayment plans in 2007. It’s an interesting time period because house prices were rising nationwide at that time. The median total debt level for the homeowners was about $140,000, and more than a third had medical debt, a known contributor to bankruptcy filings. The authors’ goal was to see to what extent chapter 13 helps homeowners with its automatic stay and ability to cure mortgage arrearages in a repayment plan. Here are some of the findings:
- First the bad news: About 28 percent of the petitioners ultimately lost their homes to foreclosure. The rates were higher for homeowners who were six months or a year delinquent on their payments when they filed bankruptcy.
- The good news for them nonetheless is that chapter 13 bankruptcy delayed foreclosure by more than two years on average.
- Moreover, compared to a sample of homeowners who went into foreclosure without filing bankruptcy, the 567 chapter 13 filers did better. According to the New Castle County Sheriff’s Office, 43 percent of houses that were listed as in foreclosure sale but not in bankruptcy were ultimately sold.
- Finally, homeowners who hired an experienced bankruptcy lawyer (defined as handling at least 25 cases in the sample) were less likely to lose their homes than those who had an inexperienced attorney or filed their cases pro se.
The full study can be found here.
Although the study claims to be the first of its kind, it has drawbacks. For one, it’s not a national sample, so it doesn’t take into account variations between state foreclosure laws or local economies. For another, it took place at a time when overall economic conditions were better. However, it does indicate that while not everyone can make it through chapter 13, it does help homeowners more than going through foreclosure.
The most obvious lesson, though, is that hiring an experienced bankruptcy lawyer before falling behind on mortgage payments is the best bet for success.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 Bankruptcy Lawyer Brooklyn NY Bruce Weiner for a free initial consultation.