Increase in Bankruptcy Filings to Stop House Repossession

In the first six months of this year, over 50 percent of distressed homeowners in Washington have filed for Chapter 13 bankruptcy protection in an effort to stave off house repossession.

Industry experts said that the state’s 52 percent increase in bankruptcy filings is not unique because it has been happening across the country. They said that people whose properties are worth less than the total mortgage they owed sometimes resort to bankruptcy protection to avoid house repossession.

Lance Barton of AACER said that the current bankruptcy rate in Washington is not so bad compared with other states, such as Tennessee and Nevada. He added that the state’s per capita ranking is average in the first half of 2009, earning Washington the 24th position in the country.

However, Washington is ninth in the ranking in terms of the bankruptcy increase based on annual per capital. And Barton noted that the numbers are moving up quickly.

Last month, the number of bankruptcy filings in King County reached a total of 601, representing an increase of about 70 percent compared with figures for the same month last year. In Snohomish County, 309 new bankruptcy filings were posted in June, representing an increase of 84 percent.

Washington economists were alarmed by the number of distressed homeowners who filed for bankruptcy to avoid house repossession. However, they pointed out that the total number of bankruptcies is still a small percentage of the overall population.

Eric Swenson of the economic and revenue forecast council said that the increase in bankruptcy filings in the state is not surprising. He explained that the biggest rise in bankruptcy filings happened in areas where highest increases in property prices occurred.

Industry experts said that bankruptcy may help homeowners who are at risk of foreclosure and cannot work solutions with lenders. They said that homeowners can file a bankruptcy as a way to delay foreclosure. The automatic stay bankruptcy filing directs creditors to stop their debt collection immediately.

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