Expect (alot) more Middle Class Bankruptcies

Posted on Tuesday, January 4, 2011

Of course “Bankruptcy Filings Leapt 9% Last Year.” Filings will increase even more, along with voracity in the fight for bankruptcy ‘cram downs.’ The reduced interest rates on all those mortgage modifications the President promised would save us all will begin to tick upward again - they’re only reduced for a maximum of 5 years – one again making those mortgages unaffordable. And banks in recourse states – those states where borrowers are responsible for the deficiency judgement, the difference between what they own the bank and what the bank can get from the foreclosure sale - begin to enforce those deficiency judgments which are good for as many as 20 years. Or even worse, sell the deficiency judgments to aggressive collections firms who for sure will want to collect a return on their investment! And these borrowers will not want to do a Chapter 13 work –out. They already came to the conclusion that they could not afford the house, or perhaps even tried to strategically walk away and perhaps even thought they got away with it. Combine that with the tighter, costlier credit we’ll no doubt see in the wake of Dodd Frank implementation and GSE reforms and the 9% ‘leap’ in bankruptcy filing we saw last year, even the 4 million filing recorded over the past 3 years, will pale in comparison. And, unfortunately, a lot more of these folks will be the American poster child middle classers.

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