The Foreclosure Report

New Law For Bankrupt Homeowners

The Associated Press looks at the new bankruptcy law and its effect on homeowners. "Most of the big changes in bankruptcy rules, which backers say are designed to prevent abuse of the financial system and ensure that affordable credit is available for all, take effect on Monday. But the provisions affecting home ownership, which override state laws, went into effect in April when President Bush signed into law the federal Bankruptcy Abuse Prevention and Consumer Protection Act."

"Some of the law's supporters said they were trying to force changes in Florida and Texas, which have been called debtor's paradises and deadbeat havens because of their liberal allowances for homestead exemptions, the amount of a home's value that is protected from creditors. Those states, along with Iowa, Kansas and South Dakota, allow people in bankruptcy to protect their primary residences from creditors no matter how much the property is worth."

"The revised bankruptcy law now restricts unlimited homestead exemptions to people who have lived in their primary residence for at least three years and four months. For people in their homes for less time than that, the law allows them to keep up to $125,000 of their home's value."

"With housing prices skyrocketing in some areas of the U.S., the changes are not just affecting the rich. Middle-class homeowners also could lose their residences to creditors if they declare bankruptcy. Median home prices in August were $246,500 in Florida and $139,700 in Texas, well past the exemption limit."

posted by Ben Jones @ 2:45 PM