Recent Foreclosures Provide Insight to State of Bankruptcy

English: Sign of the times - Foreclosure

English: Sign of the times – Foreclosure (Photo credit: Wikipedia)

There has never been any doubt as to the correlation in the economy to foreclosure rates and bankruptcies.The recent rate of foreclosures provides us with a clearer insight to the state of bankruptcy in our economy.

Both foreclosure and bankruptcies are usually symptoms of a poor economy. The good news is that the rate of foreclosures are beginning to subside along with the number of US citizens filing for bankruptcy protection. That is a clear sign our economy is beginning to turn around.

Start Ups in Foreclosures on Decline and Bankruptcy Follows Suit

According to recent statistics supplied by RealtyTrac, an organization dedicated to keeping up with the movement of the sell of homes as well as foreclosures, the number of homes starting on a path to foreclosure declined to its lowest level in six years. The number of homes entering the foreclosure process for the first time sank to 77,494 in November of 2012. That is a decline of 13 percent from October of 2012 and 28 percent from November of 2011.

In comparison, The National Bankruptcy Research Center reported that bankruptcy filings declined 17 percent in September of 2012 from September of 2011. The filing data includes 90,000 filers in September compared to 102,000 in August of this year. For 2012, bankruptcy filings have declined 14 per cent overall so far.

Repossession Backlog Causes Increase in Foreclosures But Not in Bankruptcy

United States foreclosures increased to a nine month high but in the form of repossessions. There are close to 1 million U.S. homes that are backlogged in some stage of the foreclosure process, and any of those houses could potentially end up being repossessed by a lender. November of 2012 marked the first annual increase of bank repossessions since October of 2010. Many believe the 2010 allegations of abuses by the mortgage industry compelled many of the mortgage lenders to cease their foreclosures. This backlog of foreclosures is now showing up in the foreclosure process as repossessions.

Bankruptcies, on the other hand, have not experienced a backlog. Historically, people file for bankruptcy protection when they absolutely have a need. There is no institution like a mortgage bank to delay the bankruptcy process. Most bankruptcy filers who got into financial trouble this past recession have already filed for protection.

Foreclosures and the Repossession Increase May Be Good News for Economy

It is becoming more evident the mortgage banks are now willing to begin the foreclosure process through repossessions, and that is good news over the long haul for a sluggish American economy. In order to reduce the backlog of foreclosed homes, mortgage banks will have to loosen up the availability of loan money to make it possible for new owners to purchase the glut of homes coming on the market.

The dumping of homes through the foreclosure process may have a short-term negative effect on the economy. The cheaper homes may temporarily lower the value of homes around the country. Some economists are predicting it could take up to ten years to empty the backlog of foreclosures. However, the housing market is currently improving with rising prices, and if employment continues to rise, it will not only help stop new foreclosures, it will help to reduce bankruptcies as well.



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