Personal bankruptcy filings, particularly Chapter 13 bankruptcy have been rising steadily this year, according a recent article in the Wall Street Journal. October 2021 saw 10,764 personal Chapter 13 bankruptcy filings nationally, the highest level this year and the fifth monthly increase since May, although that is still far below the average filings in 2019. Interestingly, while Chapter 13 bankruptcy has been on the rise, Chapter 7 filings continue to decline.
Chapter 7 bankruptcy has historically been much more widely used than Chapter 13 as it allows people to wipe their debts clean without entering into a payment plan with their creditors. Chapter 13 on the other hand requires a 3–5-year payment plan dedicating all of your disposable income (after living expenses) to paying your creditors. This begs the question: why would the seemingly less preferable bankruptcy option increase while the more preferable decreases?
One factor is almost certainly the expiration of the government-mandated moratorium on foreclosures and payment forbearance programs. One of the most common reasons people choose to file Chapter 13 is to cure a default on a home mortgage. Because people were not at risk of foreclosure and were allowed to stop making payments for up to 18 months, there was no need to seek bankruptcy protection to avoid foreclosure. Now that those protections have expired, foreclosure filings have increased leading to more Chapter 13 filings. For the 3rd quarter 2021, there were 45,517 properties in some stage of the foreclosure process, a 34% increase from the 2nd quarter and a 65% increase from 3rd quarter 2020. However, this was still 60% lower than 2019 before the COVID-19 pandemic. Foreclosure filings are expected to continue increasing as more and more people exit forbearance programs with no means of making up their missed payments.
Fortunately, foreclosure filings are not the end of the story. In Massachusetts, the foreclosure process is initiated by filing a complaint with the land court and is not completed until the bank has completed the foreclosure auction. A process which takes several months. A Chapter 13 Bankruptcy Filing can stop a foreclosure proceeding at any stage before the auction is completed, allowing people additional time to cure a default, negotiate a loan modification or sell the property for fair value on the open market.
If your home is in danger of foreclosure, you need an experienced Massachusetts bankruptcy attorney to help you understand your rights and evaluate all your options. Attorney Marques Lipton has helped hundreds of Massachusetts homeowners avoid foreclosure and stay in their homes through the Chapter 13 bankruptcy process. If you are in danger of losing your home to foreclosure, call the Lipton Law Group today at 508-202-0681 for a free initial consultation today or fill out our simple contact form.