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28

Jan 2010

After foreclosure, do mortgage companies keep trying to collect?

Posted by / in Weekly Posts / No comments yet

Many people ask me what happens if they walk away from the house and don’t file bankruptcy.  Do the big banks and mortgage companies really keep trying to collect the rest of their money?

Well in some states, about half, they can’t.  For example, they can’t in California and it’s very difficult in Pennsylvania.  But here in Virginia, they can and do.

The Federal Deposit Insurance keeps track of that.  (The FDIC’s job is to be sure the banks have money in the bank when you need your, so they keep track of how much the banks collect on, among other things, charged off loans.)  The FDIC reports the banks collected one billion on charged off mortgages in the first nine months of last year–up from about $750 million the year before.  Another $400 million was collected from charged off home equity loans.  And that’s how much they got–the amount they tried to get from people (who then woke up and filed bankruptcy to stop them) would be much higher.

The FDIC total does not include money collected by debt collectors who bought the foreclosed loans from the banks and then tracked down the former home owners.   What’s the bottom line?  In Virginia you can’t just give back the house and figure they will call it square.  Sooner or later, they will come after you for the rest of their money.

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21

Jan 2010

The bankruptcy cram-down and the Massachusetts election

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Today’s New York Times blames the Democratic defeat in the Massachusetts Senate election, in part on the failure of the Obama administration to help people reduce their mortgages to save their homes.  Copy this link:  http://www.nytimes.com/2010/01/21/opinion/21thur1.html

That’s the bankruptcy cram-down that candidate Barack Obama promised to support, but President Obama orphaned.  Without Presidential support, it passed the House of Representatives, but died in the Senate.  Before the election, based on his promise, I personally told a hundred people that they had a chance to save their homes if Obama was elected.  (That was my advice as their lawyer; personally, I voted for the other guy.)  Well, Obama got elected but he didn’t help and they lost their homes.

(The Washington Post January 9, 2010, had an excellent article by Kevin Huffman explaining why action is still needed, or foreclosures will continue and housing values will continue to fall.   Otherwise,  “this crisis could go on for years, dragging down the chance of real economic recovery.”  http://www.washingtonpost.com/wp-dyn/content/article/2010/01/08/AR2010010803377.html)

Obama’s failure to push the bankruptcy cram-down had at least  small impact in Massachusetts, and maybe a big one.   The small impact was that probably ten thousand homes went to foreclosure there that could have been saved.  Now, that by itself does not reverse a hundred thousand vote defeat.

The big impact would have been evidence that Obama’s recovery plan had something in it for the ordinary family.

Businesses have always been allowed to use bankruptcy to reduce what’s owed on an apartment or warehouse or office building.  Allowing people to do the same to save their homes would show that Obama’s recovery plan included something for the middle class.  Voters might would have been more willing to trust him on health care and the other issues, if he had fought for them on something they could see and understand.

So far, the only thing people can see that Obama has done is to throw money at the banks.  And that wasn’t change;  Republicans would have, and did, do the same thing.    Think it was Harry Truman who said, if there’s a choice between a Republican and a Republican, the Republican will win most every time.   That’s what happened in Massachusetts.

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08

Jan 2010

Bankruptcy Outlook for 2010

Posted by / in General Information About Bankruptcy Law / 1 comment

New Years

There were 10,634 bankruptcy cases filed in the Alexandria bankruptcy court in 2009.  That broke the record of 9,769 set in 1997.

About 750 of those cases were my clients, and each had their own series of events that brought them to my office.

Many were directly related to the mortgage crisis.  (In the last half of 2007, it seemed like half the people I saw were either people who worked in real estate or the mortgage business, or people who had gotten into mortgages that never made any sense.)   But the recession itself has now passed the real estate crisis as the biggest economic cause of personal bankruptcies.   Layoffs, reduced hours and reduced pay, people who just can’t get work.

National studies show the biggest cause of filing bankruptcy, year after year, is medical.  Either medical bills, directly, or lost time from work for medical reasons, or medical expenses for other family members that ends up on the credit cards.

Divorce often goes hand in hand with bankruptcy, as the costs of living separately is almost always more than the cost of living together.  (Some of those divorces are causes by the financial stresses, and now and then I think a marriage could have been saved if people had come to see me sooner, instead of fighting with each other about their lack of money.)

Nationally, there were 1.4 million personal bankruptcies in 2009.  The American Bankruptcy institute expects the number to go higher in 2010.   The national record was set in 2005, when Congress passed the new bankruptcy law, which many people feared would make filing bankruptcy far more difficult.

The cities and counties served by the Alexandria VA bankruptcy court have a population of two million people–that’s about 1.5 million adults.  That 10,000 bankruptcies represents about 15,000 adults, since about half are husband and wife cases.  So pretty close to one out of every hundred adults in Northern Virginia filed for bankruptcy last year.  At that rate, about half of all Americans file bankruptcy at some point in their lives.

(Bankruptcyaction.com keeps an update on national statistics.  http://www.bankruptcyaction.com/USbankstats.htm)

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES