General Motors and Homeowners…
Bankruptcy filings spiked 33% in the third quarter and in 2009, filings are up 35% over 2008. This marks the highest number of filings since 2005 and the skyrocketing numbers are attributed to the credit crunch and unemployment rates creating difficulties for the consumers to manage their debt.
“Whether and how mortgages are included in bankruptcies depends on state law,” said Texas Mortgage Consultant Nicole Lahti. “I know here in Texas, peoples’ homesteads can’t be used to pay off creditors if someone files for bankruptcy. However, they may choose to do so. We’ll definitely see a spike in foreclosures if people decide (or have to) include their mortgages in their BK, because they technically still have to go through the foreclosure process, then include any remaining debt owed to the bank in the BK. In my opinion, this will only complicate (and slow down) the foreclosure process even more, giving the market a false sense of reality of how many mortgages are in bad shape.”
If gigantic businesses like General Growth Properties, CIT Group and General Motors act as a signal to us, it seems that filings may continue to rise- if enterprise level companies are struggling, personal homes are struggling along with them.
“Overall, I’m noticing the stigma of filing for BK, foreclosure or even short-sale diminishing. People are less embarrassed to file because everyone is in the same boat right now,” Lahti said.