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Bankruptcy During Foreclosure: Home Preservation Through Chapters 7 and 13

36 Pages Posted: 25 Oct 2013 Last revised: 2 Jan 2014

Mark R. Lindblad

University of North Carolina - Chapel Hill

Roberto Quercia

University of North Carolina (UNC) at Chapel Hill - Department of City and Regional Planning

Melissa B. Jacoby

University of North Carolina (UNC) at Chapel Hill - School of Law

Ling Wang

University of North Carolina (UNC) at Chapel Hill

Huifang Zhao

University of North Carolina (UNC) at Chapel Hill

Date Written: October 23, 2013

Abstract

Filing for bankruptcy is the primary legal mechanism by which homeowners in foreclosure can exert control over ownership of their home, yet little is known about the interplay between bankruptcy chapters, mortgage servicers, state foreclosure laws, and home foreclosure auctions. We analyze 4,280 lower-income homeowners in the United States who were more than 90 days late paying their 30-year fixed-rate mortgages. Two dozen organizations serviced these mortgages and initiated foreclosure between 2003 and 2012. We identify wide variation between mortgage servicers in their likelihood of bringing the property to auction. We also show that when homeowners in foreclosure filed for bankruptcy, foreclosure auctions were 70% less likely. Chapters 7 and 13 both reduce the hazard of auction, but the effect is five times greater for Chapter 13, which contains enhanced tools to preserve homeownership. Bankruptcy’s effects are strongest in states that permit power-of-sale foreclosure or withdraw homeowners’ right-of-redemption at the time of auction.

Keywords: mortgage servicing, displacement, relocation, real estate owned, homeownership, default

Suggested Citation

Lindblad, Mark R. and Quercia, Roberto and Jacoby, Melissa B. and Wang, Ling and Zhao, Huifang, Bankruptcy During Foreclosure: Home Preservation Through Chapters 7 and 13 (October 23, 2013). UNC Legal Studies Research Paper No. 2344444. Available at SSRN: https://ssrn.com/abstract=2344444 or http://dx.doi.org/10.2139/ssrn.2344444

Mark R. Lindblad (Contact Author)

University of North Carolina - Chapel Hill ( email )

Chapel Hill, NC 27599
United States
919.843.5749 (Phone)

HOME PAGE: http://ccc.unc.edu/people/mark-lindblad/

Roberto G. Quercia

University of North Carolina (UNC) at Chapel Hill - Department of City and Regional Planning ( email )

New East Building
Chapel Hill, NC 27599-3140
United States
919-962-4766 (Phone)
Not available (Fax)

Melissa B. Jacoby

University of North Carolina (UNC) at Chapel Hill - School of Law ( email )

Van Hecke-Wettach Hall, 160 Ridge Road
CB #3380
Chapel Hill, NC 27599-3380
United States

Ling Wang

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Huifang Zhao

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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