Boston Bankruptcy Attorney Blog

Chapter 13 bankruptcy filings have declined in Boston and throughout Massachusetts since 2010, according to a report in the Boston Business Journal. A review of filings for the third quarter of 2011, measured through September 29, found that the total number of Chapter 13 filings during that quarter, compared to the third quarter of 2010, was seven percent lower statewide and eight percent lower in Boston. Comparing the first nine months of 2011 to the first nine months of 2010, the Business Journal found that Chapter 13 filings declined by eighteen percent for the state and nineteen percent for Boston.

"Chapter 13" refers to a chapter in the United States Bankruptcy Code, the laws passed by Congress governing the bankruptcy process. While some forms of bankruptcy involve mass liquidation of assets and dissolution of a business organization, Chapter 13 aims to restructure assets and debts to allow them to be paid efficiently and on favorable terms to the debtor. This is ideal for individuals with regular income, as they can keep most or all of their property and can develop a payment plan for their debts. A plan under Chapter 13 typically lasts three to five years, during which time the debtor must make regular payments to certain creditors and to an appointed Trustee accordance with a plan approved by the bankruptcy court.

With regard to the current decline in the number of Chapter 13 filings, the Business Journal identifies the declining housing market as a possible explanation. Many Boston homes are now valued below the principal of their mortgages, meaning that selling the house would not bring in enough money to pay the full balance of the mortgage. The story notes that homeowners may be giving up on trying to save the homes.

However, filings in the other two major forms of bankruptcy, Chapters 7 and 11, have also declined in Boston and throughout Massachusetts. This may be counter-intuitive, because liquidation under Chapter 7 may just be the best way for an underwater homeowner to achieve a fresh start with a clean walk-away from the home and a discharge of most other debts.

Debtors often ask whether a foreclosure or a bankruptcy would be a better (or worse) option when dealing with a distressed property. These are not necessarily mutually exclusive, as they serve different purposes in different points in time. In most cases, a properly filed bankruptcy will temporarily delay a foreclosure. But this may not be enough to save the home, as a bankruptcy generally does not affect a mortgage secured by a primary residence, which would still need to be paid in order to have the foreclosure stop for good.

But if a foreclosure does take place, a bankruptcy afterwards is often the only way to discharge the hundreds of thousands of dollars of deficiency and second mortgage debts that do not go away just because the house does.