A recent corrupting trend in Chapter 13 bankruptcy is creating serious challenges for honest Chapter 13 debtors, their attorneys, mortgage companies, and Bankruptcy Courts.  The problem is a new foreclosure scam called property dumping, and it illustrates the ingeniously evil thinking of some real estate crooks.

Property dumping has cropped up in response to the

I.          The Growth Of Government-Held Debt

The managing director of Economics1, a nonpartisan policy-research institute, reports:

In reviewing the latest Fed data, Investor’s Business Daily noticed that the total amount of government-financed consumer credit (the vast majority of which is mortgages) stood at $6.3 trillion, just slightly below the private sector’s total, $6.5 trillion.  As recently as 2006, the private sector far outpaced the government:  $8.5 trillion to $4.4 trillion.

Christopher Papagianis, House of Doubt, NATIONAL REVIEW, Aug. 15, 2011, at 21.

In addition, the various bailouts that have not been repaid mean that the government holds a great deal of non-consumer debt.  For example, Mark Modica of the New York Post observes:

Taxpayers still own about 26 percent of GM, and it looks increasingly unlikely that they’ll ever get their money back:  The share price would have to rise to more than $54, and it’s stuck in the low thirties.

Most important is the enormous debt the feds owe foreign countries who hold American debt – most notably, China.  Moreover, the recent battle over raising the debt ceiling led to the downgrading of American debt, and the subsequent current scramble to lower the federal deficit, suggests we may be nearing the point at which the feds will no longer be able to fund any more bailouts.

With the reliability of the banks in question, is it any wonder that the loan modification has failed to produce the hoped for results?

II.        The Bankruptcy Option

Bankruptcy is a federal law option that is administered by the federal government through the bankruptcy courts and the U.S. Trustee’s Office.  Therefore, the cost is already part of the funding of the judiciary and the Justice Department, so there is no need for large subsidies or bailouts.  Moreover, unlike the programs I discussed in the previous post, there is no doubt about the constitutionality of the bankruptcy system:  it is explicitly authorized in article I, section 8, of the U.S. Constitution.

How does bankruptcy help a homeowner deal with mortgage problems?
Continue Reading Home Mortgage Modification And Bankruptcy – Part III