Although the numbers for those filing bankruptcy has dropped in some areas and gone flat in others, it's obvious that the economy is not recovering. Unemployment numbers have not dropped below 9% in the last three years and some experts are saying that the actual number of those unemployed is closer to 16% or 17%. It's become apparent that there is a possibility of further reasons of the drop in numbers of those filing for bankruptcy might be that people are just too broke to file bankruptcy. After someone has lost their home to foreclosure and been unemployed for longer than their 99 weeks of insurance, if they don't have any property to sell they will become destitute. If only these folks heeded the warnings and were pro active in their decision to file for bankruptcy. Sometimes trying to hang on and thinking that you're doing the right thing by continuing to pay for debts you can't afford bites you in the end.
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With the economy still in the tank it's unusual to see the number of those filing bankruptcy and foreclosure side by side dropping. Earlier this year it was reported that there were 20 million homes in default or danger of going into default. It almost seems like the banks are not pursuing the foreclosure of homes as aggressively as they were a few years back. Many of these people in default are trying to hang on to hope by applying for a mortgage modification. The problem is, HAMP has been a dismal failure for homeowners that are just trying to get a piece of the billions of dollars paid out in the TARP bail out. Even though Congress promised to address the foreclosure issue they have done nothing to force the banks to dole out these loans. It was recently reported in the Chicago area that one of the big six banks was demolishing homes instead of reselling them at a loss.
Where HAMP could be effective is in cooperation of filing bankruptcy. Filing a Chapter 13 bankruptcy is almost perfectly form fitted for the real estate crisis that the US is facing. There was recently an article written about an Orlando Chapter 13 bankruptcy trustee, Laurie K. Weatherford that is working on pushing the Bankruptcy Mortgage Modification Mediation Program, which so far has had a 75% success rate. One bankruptcy attorney reported a success rate of 90% of their clients having their balances reduced on the principle.
Although it's not required for a mortgage servicer to approve a loan modification, they know that when the debtor is filing Chapter 13 bankruptcy there is some sort of mediation necessary. Once the Chapter 13 bankruptcy plan is approved, it's pretty hard for the creditor to back out the loan mod.
It seems that when a debtor is filing for bankruptcy, the loan modification is moved to the top of the pile at the mortgage company. According to this program when the debtor is filing Chapter 13 bankruptcy, the process is three times faster than usual. Using the power of a bankruptcy filing combined with the negotiation skills of a bankruptcy attorney, filing Chapter 13 can be a win-win situation for both creditor and debtor.
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