Foreclosure Boom Expected in 2012 — Chapter 13 Bankruptcy Can Help

Mortgage Companies Expected to Catch Up With Backlog of Delinquent Homes

In 2011, homeowners in Minnesota enjoyed a reprieve from foreclosures in the aftermath of the robo-signing scandal. According to RealtyTrac, which tracks home redemption trends nationwide, 25,417 homes were foreclosed in Minnesota last year. The number marks a 19 percent decrease in home foreclosures from the previous year.

Although the break was welcome for many, industry experts do not believe it will last. Daren Blomquist, a spokesman for RealtyTrac, told Minnesota Public Radio that homeowners should expect a burst in foreclosures in the new year. The reason for the resurgence of foreclosures will be due in large part to mortgage companies catching up with backlogs of delinquent mortgages. Blomquist estimates 400,000 homes avoided repossession in 2010 because of processing delays. Nationally, Blomquist believes we will see as much as a 25 percent increase in foreclosures in 2012.

But what should homeowners do who don't want to lose their homes? Many have been frustrated by loan modification processes that do not seem to end. Others have gone through the entire process only to be told that they are missing a document and must start all over again. These homeowners may be relieved to know that Chapter 13 bankruptcy may be able to help them get on an even keel again.

Advantages of Chapter 13 Bankruptcy

One of the main benefits of a Chapter 13 bankruptcy is that it can be used to stop a home foreclosure and catch up on delinquent payments. Delinquent payments may be cured by making a series of payments into the bankruptcy plan over a period of 36 to 60 months. As long as the home has not been sold, it can still be saved.

Another advantage of Chapter 13 bankruptcy is that it can be used to reorganize other secured debts as well. If you are making payments on a car, you may be able to place the car in the bankruptcy plan, stretching out the payments for your vehicle over the length of the plan and potentially lowering the payment for your vehicle.

Lien Stripping Using Chapter 13

Many people would be able to afford their homes if they did not have to pay their second and third mortgages. Traditionally, the Bankruptcy Court in Minnesota has not allowed people to strip off their second and third mortgages in a bankruptcy, even if both mortgages are completely unsecured by any equity in the home itself. Such a process, sometimes called lien stripping, has been allowed in most other states, but not in Minnesota.

That ban may soon change. Minnesota bankruptcy attorneys have been fighting for years to get the courts to re-examine their stance on stripping off second mortgages. Last year, a homeowner fought for his right to strip his unsecured second and third mortgages from his home. When his case was appealed to the Bankruptcy Appellate Panel, he won. The bankruptcy trustee has now appealed that decision to the 8th Circuit Court of Appeals. A decision is expected sometime this year.

Financially distressed homeowners need workable solutions. If you are facing home foreclosure, you should speak with a Minneapolis bankruptcy attorney who has experience and can provide you with options for resolving your mortgage problem.