Mortgage Bankruptcy: Tips to Save Your Home from Foreclosure
Mortgage bankruptcy filings are on the rise as homeowners continue to struggle financially. The American Bankruptcy Institute states bankruptcy filings rose 35-percent during 2009 and millions more are anticipated during 2010.
Mortgage bankruptcy is also referred to as the Conyers Bill; a controversial bill enacted by legislation in 2007. The Conyers Bill modified terms of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) passed by Congress in 2005.
Controversy stems from the fact the Conyers Bill grants bankruptcy courts authorization to alter existing mortgage terms to benefit borrowers. Mortgage terms that can be changed include: reduction of principal mortgage balance to reflect appraised property value; reduced interest rates; and elimination of excessive fees.
Altering mortgage terms provides homeowners the opportunity to regain control over finances. As long as borrowers adhere to modified loan terms, mortgage lenders can recover financial losses and avoid foreclosure.
Under Conyers Bill, borrowers are required to provide evidence they are financially insolvent and unable to cure mortgage arrears. The bill provides relief to eligible homeowners who want to keep their home in the event of bankruptcy.
The mortgage bankruptcy bill offers protection to homeowners who obtained subprime or non-conventional mortgage loans after January 1, 2000 and later filed for chapter 13 bankruptcy. Borrowers are required to provide sufficient evidence proving they lack the financial ability to stay current on their mortgage note.
When debtors petition the court for bankruptcy protection their main objective is to save their home from foreclosure. Since Chapter 13 provides financial relief by restructuring debt and extending payment terms, bankruptcy courts can control payment terms to ensure creditors and debtors are protected.
Debtors are required to submit chapter 13 payments directly to the bankruptcy Trustee, who in turn distributes payments to creditors. If debtors do not adhere to their repayment plan, creditors can petition the court and seek dismissal of the bankruptcy petition.
A judge will take the petition under advisement and review events which caused debtors to fail out of bankruptcy. The judge can either allow debtors to file Chapter 7 or dismiss the case. Chapter 7 requires debtors to liquidate assets and use proceeds to pay debts. Outstanding balances are discharged and debtors are no longer responsible for repayment.
When mortgage bankruptcy petitions are dismissed, debtors lose all protection from the court. Creditors can move forward with collection action at the point where they left off prior to the debtor’s bankruptcy filing. In some cases, foreclosure can begin within 72 hours of failing out of bankruptcy.
Homeowners considering mortgage bankruptcy should obtain legal counsel from a qualified bankruptcy attorney. Personal bankruptcy has serious financial consequences which remain on credit reports for ten years.
When possible utilize bankruptcy alternatives such as debt consolidation, debt settlement, or credit counseling. For borrowers with no other options, mortgage bankruptcy might be a solution to saving their home as long as they can adhere to the repayment plan.
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