Thursday, October 12, 2006

Bankruptcies Could Increase

While a new federal law cracking down on personal bankruptcies has tempered activity in this area over the year that it has been in effect, experts warn that the volume could crank up again as more and more Americans seek Chapter 13 protection as a way to hang on to their homes.

The reason, say the experts: the high level of adjustable-rate mortgage debt assumed by borrowers in recent years, particularly in the form of "interest-only" or "teaser-rate" loans.

First American Real Estate Solutions estimates that borrowing costs will climb on $300 billion worth of ARMs and as much as $1 trillion worth of mortgages in both 2007 and 2008, possibly doubling the monthly obligation for some homeowners.

"Some just won't be able to make the new monthly payments," remarks bankruptcy attorney Jules Cohen of Orlando-based Akerman Senterfitt. "They'll get two or three months behind, and then you'll see a lot of them file Chapter 13 bankruptcy in hopes they can set up a debt-payment plan and prevent foreclosure."

Source: Orlando Sentinel (FL) (10/11/06) Burnett, Richard