Although Florida remains one of the states most hard-hit by the foreclosure crisis, the third quarter of 2010 showed a large drop in new foreclosure filings in Florida Courts. In Orlando, foreclosure filings were down by 14 percent over 2009 numbers, although we still had the highest foreclosure rate in the nation.

But does that mean the foreclosure crisis is winding down? One local bankruptcy lawyer thinks that the fact that foreclosure filings are down does not mean the actual mortgage delinquency rate has diminished. Instead, many struggling homeowners may be opting to file for Chapter 13 bankruptcy before their homes can be taken through foreclosure.

Foreclosure crisis may best be measured by mortgage delinquencies, not just foreclosures

In a Chapter 13 bankruptcy, a repayment plan is set up based on the debtor’s ability to pay. All of the debtor’s qualifying debts are bundled together, and an affordable monthly payment is sent to the bankruptcy trustee. In certain cases, the bankruptcy judge can also strip a second mortgage from the home. As a result, many people who are in danger of foreclosure can actually save their homes by filing for Chapter 13.

Even if a foreclosure action has already been filed, the automatic bankruptcy stay, which brings an end to all collection actions until the bankruptcy is complete, puts a halt to the foreclosure proceedings.

You may have heard about bankruptcy “cramdown” proposals, which would allow bankruptcy judges to modify underwater mortgages so that they better reflect the home’s value. Unfortunately, none of those proposals has yet made it into law. However, at least one judge made national news by ruling that a homeowner owed less than the total of his underwater mortgage.

There is a huge backlog in Florida’s foreclosure courts right now due to the “robo-signing” and fraudulent mortgage assignment scandals involving banks and their law firms. Even with the number of initial foreclosure filings dropping, it’s hard to believe that the foreclosure backlog wouldn’t be worse without a large number of people filing for Chapter 13. After all, Florida’s unemployment rate is still at 11.1 percent as of today, and the foreclosure rate in Orlando is still five to 10 times the normal rate.

If you are facing foreclosure, Chapter 13 bankruptcy may be a realistic option for saving your home. Be sure to get good legal advice about your own situation.

Source: U.S. Politics Today, “Dismissals May Cloud Foreclosure Picture,” James H. Monroe, April 8, 2011