In the current economy 9.1 million homeowners are finding themselves in underwater positions on their homes – at least 25 percent more than their homes are worth. More and more families are facing foreclosures because of the banks banks and other lenders unwillingness and incapability to provide real solutions. When loan modifications and other solutions fail, borrowers have one final option: bankruptcy.
When a borrower files for Chapter 7 or Chapter 13 bankruptcy, an automatic stay is immediately put in place, while means creditors cannot proceed with foreclosure or other actions without the bankruptcy court’s permission. This provides a temporary reprieve for the filer, enabling them to withstand the next foreclosure sale. In this regard, bankruptcy can become a powerful tool for the consumer against lenders that repeatedly deny loan modifications, or offer “negative modifications” that tend to worsen borrowers’ situations. So what can a family do when a lender denies a loan modification and insists on foreclosure? File bankruptcy. And after a few months when the court permission to reschedule the foreclosure sale? File bankruptcy again.
Foreclosure v. Fines
Truthfully, this practice of serial bankruptcy is illegal, but it is certain many of these filings would not occur if the loan modifications had been approved. Most of the Serial Loan Modification Deniers are the “too big to fail” institutions and banks. They receive fines for not approving loan modifications but they treat those fines as a cost of doing business. Meanwhile the families in need of modifications continue to be denied.
Is There a Solution?
A recent study published in the Florida Law Review found “that bankruptcy filings delay foreclosures but are not generally effective in curing payment defaults, especially when compared to modifications negotiated outside of bankruptcy, which are highly effective.” Loan modifications that drop payments to affordable levels should be the solve, but unfortunately it seems that the Serial Loan Modification Deniers cannot deliver this solution.