The Effect of Filing for Bankruptcy on Foreclosure

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Over the past few months the Foreclosure Project team here at the Poverty Center has been collecting data on residential foreclosures that started during 2012 in Durham County, NC. Now as the summer season is drawing to a close, we wanted to analyze them to see if filing for bankruptcy affected the foreclosure process.

A report published by the UNC Center on Community Capital (CCC) compared foreclosure outcomes between homeowners who filed for bankruptcy and those who did not. Researchers found that bankruptcy filers experienced foreclosure sale at a lower rate than non-filers. It also found that foreclosures with associated bankruptcy cases lasted longer than cases without bankruptcies.

We contrasted our data to that in the CCC report. Of the 396 foreclosure cases in our sample to date, 156 of them ended with the properties being sold. At 39% this is considerably lower than the 59% observed in the CCC report. This may be due to a variety of factors, including the laws in the sample jurisdiction. (All our data comes from North Carolina, where foreclosures are predominantly nonjudicial; the CCC data includes both judicial and nonjudicial states.)

We found that homeowners filed for bankruptcy in 10% of foreclosures, much like to the 8% observed by the CCC. In the CCC study, 59% of non-bankruptcy foreclosures ended in sale, contrasted with 49% of bankruptcy foreclosures. In our sample, 41% of non-bankruptcy foreclosures ended in sale, while only 27% of foreclosures with an associated bankruptcy ended in a foreclosure sale.

Another similarity between our data and the CCC report is that filing for bankruptcy while in foreclosure seems to extend the amount of time a homeowner can stay in the home. The CCC report found that the median time from foreclosure start to sale for bankruptcy cases was about 2.5 times longer than non-bankruptcy cases (20 moths for filers compared to 8 months for non-filers). Our data yielded a similar trend.

Of the bankruptcy cases that went to sale, the median time from foreclosure start to sale was just over 9 months. But for non-bankruptcy cases the median time from foreclosure start to sale was only 5 months. This difference in median time may not be as wide as those in the CCC report, but it still demonstrates the trend that foreclosures with a bankruptcy generally take longer to go to sale than non-bankruptcy cases.

Both our data and the CCC report indicate that filing for bankruptcy may reduce the likelihood of a foreclosed home being sold. Even if a sale is ordered, filing for bankruptcy may give the homeowner some breathing room in terms of finding a place to go, gathering the resources to move and relocating.

Posted by Patrick T. VanderJeugdt on Mon. August 18, 2014 3:51 PM
Categories: Student Research
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