Study: Bankruptcy filers seek to hold on to homes

By Péralte C. Paul

The Atlanta Journal-Constitution

The agency provides financial counseling to consumers and acts as a go-between with their creditors. Of the 50,385 clients who sought pre-filing bankruptcy counseling from April through June, 10,682 said the threat of foreclosure was the primary factor for seeking protection with the courts.

The chief causes of bankruptcy are divorce, job loss or a major medical bill, said Ed Boltz, a Durham, N.C.-based bankruptcy attorney and a member of the National Association of Consumer Bankruptcy Attorneys board of directors.

Typically, consumers who enter into bankruptcy protection with an asset such as a home file Chapter 13. That section of the bankruptcy code allows debtors to reorganize their debt and develop a repayment plan over a period of years.

Mortgage terms typically aren’t changed in a bankruptcy filing, Boltz said. But the filing helps troubled borrowers because lower payment terms on credit cards and auto loans frees up cash they can put toward their mortgages.

And though many lenders have touted their willingness to deal with customers and have urged consumers to call before a problem develops, Boltz and CCCS officials say that’s not necessarily working out for consumers.

“The loan modification services shops are so overwhelmed with processing modification requests that the consumers get frustrated,” said Suzanne Boas, CCCS of Greater Atlanta’s president. “At the same time the foreclosure process is continuing to tick and they move into bankruptcy just because it gives them some breathing room.”

It’s no wonder. Unemployment continues to rise — Georgia’s seasonally adjusted jobless rate in June was 10.1 percent with expectations it will go higher.

Against that backdrop, more consumers seek bankruptcy protection even if their first choice is a mortgage-loan modification.

Lenders are still rigid, Boltz said. Homeowners who consistently pay on time can’t get help, nor can those who are seriously in arrears.

“You often get hit with ‘You’re so far behind that helping you would be fruitless so we’re not going to help you,’” Boltz said. “You have to be behind but not too far behind. You have to luck into being in the right spot at the right time.”