Bankruptcy Legal Disclaimer
DISCLOSURES REQUIRED UNDER 11 U.S.C. §§ 527 AND 342 NOTICE #1: Notice Mandated by 11 U.S.C. §§342(b)(1) and 527(a)(1)PURPOSE, BENEFITS AND COSTS OF BANKRUPTCY
Filing for bankruptcy under Chapter 13 helps financially distressed debtors save their homes.
A chapter 13 Bankruptcy is a valuable tool to combat the mortgage crisis by allowing bankruptcy judges to “strip-down” mortgage debt in Chapter 13 when the mortgage principle exceeds the current market value of the house. The subprime mortgage crisis has caused and continues to cause many homeowners to lose their homes—often because they cannot afford their monthly payments once the initially low interest rate expires. Housing pundits estimate that between 2 and 3.3 million foreclosures will occur between 2007 and 2009, including 1 out of every five subprime mortgages made since 2005. Foreclosures are very costly to both borrowers and lenders–borrowers must bear the cost of relocating and lenders lose a high fraction of the value of the house by the time it is resold.
Foreclosure is extremely costly to both borrowers and lenders, and it would be in their joint interest to deal with the mortgage crisis by renegotiating many mortgages voluntarily. But very few renegotiations have in fact occurred. This is because most mortgages have been repackaged into mortgage-backed securities, where ownership is divided among multiple security-holders who have divergent interests. As a result, they are unlikely to agree on any changes in the loan terms. In addition, while all mortgages have a servicer who acts on the owners’ behalf, most mortgage servicing contracts compensate servicers for the costs of foreclosing, but not for the costs of renegotiating. Another problem is that many homes in default have second mortgages, and the second mortgage holder can prevent the first mortgage from being refinanced unless the second mortgage is paid off.
Filing under Chapter 13 stops lenders from foreclosing and gives debtors extra time to repay mortgage arrears. Debtors can similarly use Chapter 13 to prevent repossession of their cars.
If you need help with filing a Chapter 7 Bankruptcy in California, please call our 24 hour hotline at 1-800-551-7922. Our professional San Diego chapter 7 bankruptcy attorneys are ready to help you get back on your feet and take back control of your life.