The first six months of this year saw a substantial drop in bankruptcy filings compared to the first six months of last year. According to the American Bankruptcy Institute, filings of personal bankruptcy petitions from January through June 2012 was 601,184, whereas 691,902 such petitions were filed for the same period last year, a 13 percent decrease. This decrease is likely due to low interest rates and reduced consumer spending.
The rise in foreclosure activity continued through April as that month saw a nearly 50% increase in foreclosure petitions filed in Massachusetts over what occurred in April 2012 (from 1,191 to 1,750), according to Banker & Tradesman. Petitions to foreclose so far this year are up 64% as compared to the first quarter of last year (from 3,726 to 6,098).
This increase in foreclosure activity is directly related to the interruption in the foreclosure proceedings that occurred last year as a result of problems associated with the faulty documents filed by the mortgage companies and their representatives. The backlog of foreclosures on defaulted loans is now being reflected in these increased numbers.
There was good news and bad news on the foreclosure front in March. Approximately 102,000 homeowners received the first notice of foreclosure on their home last month. According to Realty Trac, this represents the biggest monthly increase since last October.
The good news is that the total number of foreclosure filings (default notices, scheduled auctions and bank repossessions) fell in March to the lowest level since July 2007. Overall, foreclosure activity for the first quarter of this year was 16 percent below the first quarter of last year and down 2 percent compared to the last quarter of 2011.
The number of petitions to foreclose (the beginning of the foreclosure process) filed in Massachusetts last month increased 68% from the filings in January 2011 and increased 32% over the previous month. According to the Warren Group, this increase occurred despite positive improvements in the economy, unemployment and the real estate market and was most likely the result of the prior delays in foreclosures due to faulty documentation on the part of the mortgage companies.
Bankruptcy cases filed for fiscal year 2011 totaled 1,467,221. This figure was a decrease of 8% from the bankruptcy filings in fiscal year 2010 (1,596,355). During the final quarter of the fiscal year, there were 15% fewer filings than in the same three-month period in 2010.
The Chapter 7 Bankruptcy filings in 2011 totaled 1,036,950, down 10% from the 1,146,511 Chapter 7 Bankruptcy filings in 2010.
The Chapter 13 Bankruptcy filings in 2011 totaled 417,503, down 4% from the 434,839 Chapter 13 Bankruptcy filings in 2010.
According to the Federal Reserve, outstanding consumer credit increased by $20.37 billion during November, the biggest gain since November 2001. The increase in consumer credit was the 13th in 14 months. Revolving credit, which mostly measures credit-card use, rose $5.60 billion, the third straight month of an increase.
While some experts view these trends as a positive sign of economic recovery with increased consumer demand and spending, it can also mean that more unemployed and underemployed individuals are using credit cards to pay for their monthly expenses.
Joint Bankruptcy Filing for Same-Sex Married Couples (Part Two)
The following is an update on last month’s post concerning The Defense of Marriage Act (DOMA) and its effect on same-sex married couples filing a joint bankruptcy petition. The Department of Justice has announced that it "will no longer seek dismissal of bankruptcy petitions filed jointly by same-sex debtors who are married under state law". Based upon this position, it is likely that the bankruptcy Trustees will not be objecting to such filings. The Trustee in the Balas case (one of the California cases noted in last month's posting), has withdrawn his appeal of the US Bankruptcy Court's decision to allow a legally married gay couple to file a joint bankruptcy petition.
Joint Bankruptcy Filing for Same-Sex Married Couples
A married couple may file a joint Chapter 7 or Chapter 13 bankruptcy petition. Due to the federal law (the Defense of Marriage Act) which does not recognize the legality of same-sex marriages, the issue has arisen as to whether gay couples who have been married in states that legally recognize same-sex marriages can similarly file a joint bankruptcy petition.
Two recent US Bankruptcy Court decisions out of California (In re Ziviella-Howell and In re Balas)have declared the Defense of Marriage Act to be unconstitutional, paving the way for same-sex couples who are legally married to file a joint bankruptcy petition. These decisions followed a case in New York last month (In re Somers) which also denied the US Trustee's motion to dismiss the bankruptcy case jointly filed by a gay couple.
It remains to be seen how courts in other jurisdictions will treat this issue. The ramifications are significant as there are cost savings and convenience in filing one joint petition as a married couple as opposed to filing two separate individual petitions. How same-sex marriages are recognized in the bankruptcy context also affects the calculation of the means test (which is used to determine the minimum length of a Chapter 13 plan and to determine whether the debtor(s) can file a Chapter 7 or are instead forced to file a Chapter 13 bankruptcy) as the means test treats the income of married couples and non-married couples who are living together differently.
Exemptions are used to protect property of a person filing for bankruptcy (the debtor) from inclusion in the bankruptcy estate. In Massachusetts, the debtor may choose to use either the Federal property exemptions or the Massachusetts property exemptions. Which one to choose depends on the type and value of the debtor’s property.
As of April 7, 2011, new exemptions and new exemption limits became available in Massachusetts. For example, a debtor may now exempt up to $15,000 in household furnishings, up to $5,000 in tools used for one’s trade or business, up to $2,500 in cash or savings, up to $1,225 in jewelry and up to $7,500 in a motor vehicle. These exemption limits are much more generous than what had previously been available. The Federal exemptions are adjusted annually.
A Congressional Research Service (CRS) report issued on March 23, 2011, concluded that personal bankruptcy filings have increased each quarter since 2006. CRS, a think tank that provides various reports to Congress, predicts that the new bankruptcy law, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), "will not produce a permanent reduction in the rate of consumer bankruptcy".
Clearly, the ongoing problems with the economy- high unemployment, stagnant wages and a continuing foreclosure crisis- have resulted in ever increasing bankruptcy filings despite the intentions of BAPCPA to curb such filings.
The new Census Bureau Median Family Income figures have just been released, effective for all bankruptcy filings on or after March 15, 2011. For an individual in Massachusetts, the median income figure is $55,049. For a household of two the median income increases to $68,243.00, for a household of three it increases to $83,736.00 and for a household of four it increases to $102,110.00. It then increases $7,500.00 for every additional household member.
The income of a bankruptcy filer is compared to the median income as the first part of the "Means Test". The Means Test is one of the factors that determine whether the debtor can file a Chapter 7 Bankruptcy or whether the debtor must file a Chapter 13 Bankruptcy.
The number of homes lost to foreclosure in the US last year reached an all time high of over 1 million. This was up from 900,000 in 2009 and would have been even higher had lenders not slowed down on petitions to foreclose at the end of the year due to problems with proper documentation. In Massachusetts, the number of foreclosed homes was 12,233 last year, up from 9,269.00 in 2009 (a 32% increase).
Foreclosure proceedings are one of the leading causes of bankruptcy filings. In most cases the house will sell for less at a foreclosure auction than what is owed on the mortgage. This deficiency debt can be discharged in a Chapter 7 Bankruptcy filing. A Chapter 13 Bankruptcy can be utilized to stop the foreclosure and provides the homeowner up to five years to catch up on the mortgage arrears with monthly plan payments. In some cases, a Chapter 13 filing can also eliminate a second mortgage on the property.
Personal bankruptcy filings in 2010 were up 9% in the United States compared to the number of filings in 2009. After an initial decrease in the number of bankruptcy filings following the enactment of the new bankruptcy law in 2005, filings have since been on a steady increase every year. Filings increased from 1.47 million in 2009 to 1.53 million this past year.
The number of Massachusetts personal bankruptcy filings has also been steadily increasing, peaking at 23,215 in 2010. As with the national trend, this was a 9% increase from the 20,966 filings in 2009. More than three quarter were for Chapter 7 Bankruptcy filings, as opposed to Chapter 13 Bankruptcy filings.
The reasons for the increases both nationally and locally are fairly obvious: a stagnant economy, continued high unemployment and large number of homes in foreclosure.
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