Recent statistics suggest a glimmer of hope for the still-struggling U.S. housing market: According to the latest reports, mortgage delinquencies dropped to 5.78 percent nationwide during the first three months of 2012, down from 6.01 percent at the end of 2011. A mortgage is considered delinquent if the homeowner is at least 60 days past due on his or her payments. Despite the recent improvements, however, the U.S. mortgage delinquency rate remains well above historical averages. In 2006, before the U.S. housing market bubble burst, the delinquency rate was approximately 2 percent nationwide. It peaked at 7 percent in 2009.
While the recent decline in mortgage delinquency rates is an encouraging sign for the national economy, the fact remains that near-record numbers of Americans are still struggling to make ends meet. Many distressed homeowners across the country owe more on their mortgages than their homes are worth, and foreclosure rates remain far above normal.
Fortunately, there are several options that may be available to help distressed homeowners prevent foreclosure. Depending on the circumstances, potential alternatives to foreclosure may include conducting a short sale, renegotiating the mortgage, or obtaining a deed in lieu of foreclosure.
Chapter 13 Bankruptcy and Second Mortgages
For some struggling homeowners, Chapter 13 bankruptcy offers another alternative to foreclosure. Also known as reorganization bankruptcy, Chapter 13 bankruptcy allows an individual to keep his or her home while paying off certain debts according to a three- or five-year payment plan approved by a bankruptcy judge. The payment plan focuses primarily on paying off high-priority debts like home mortgages, car loans and back taxes. At the end of the repayment period, any remaining unsecured debts, such as medical bills or credit card balances, will be discharged.
Chapter 13 bankruptcy can be particularly helpful for people with second mortgages, because – unlike a primary mortgage – a second mortgage may be treated as unsecured debt. Therefore, a second mortgage may be completely discharged through Chapter 13 bankruptcy, or may be paid off at the same rate as other unsecured debts.
If you have fallen behind on your mortgage payments and are facing the loss of your home to foreclosure, contact an attorney to discuss your options and plan a course of action that is right for you.