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Bankruptcy Can Help Some Ohio Homeowners Facing Foreclosure

The recent foreclosure crisis has dominated the news for several weeks as banks halted foreclosures and the attorneys general of all 50 states chimed in regarding alleged improprieties. Many Ohio homeowners that have been faced with foreclosure have sought relief under the bankruptcy code. Filing for bankruptcy in many cases allows homeowners to retain their home.

Bankruptcy has helped some individual homeowners, however the current state of the bankruptcy code does not solve the overall foreclosure crisis. Some experts believe that changes to the bankruptcy law may be the answer.

Filing for bankruptcy puts a halt to a foreclosure. The bank must obtain permission from the bankruptcy court if the bank wishes to resume foreclosure proceedings. In some cases, a chapter 7 bankruptcy has provided homeowners with sufficient cash flow to be able to service their mortgage.

A successful chapter 7 bankruptcy discharges unsecured debt, providing some individuals with sufficient relief. Others who have filed for chapter 7 relief also seek help through the Home Affordable Modification Program (HAMP) and can retain their residence.

A chapter 13 bankruptcy offers homeowners the ability to make up arrearages in their mortgage over the course of a three to five year period under a confirmed chapter 13 payment plan.

Some distressed homeowners, however, owe more than the house is worth. Current bankruptcy law does not give the court authority to modify a first mortgage. Qualifying under HAMP, a similar program or negotiating directly with the lender are the only ways to bring a mortgage balance in line with the true value of the home for homes that are underwater.

Leonard K. Welsh writes in The Bakersfield Californian, that maybe Congress should revisit amending the bankruptcy code. In 2009, the House of Representatives passed a bill allowing the bankruptcy court in a chapter 13 case to reduce the principle balance of a mortgage to the market value of the home and extend the repayment period to 40 years. The measure was defeated in the Senate.

Source: The Bakersfield Californian, "Is filing bankruptcy the answer to nation's foreclosure crisis?," Leonard K. Welsh, 20 Oct 2010

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