Personal bankruptcy has become an important tool for those facing foreclosure.
New Haven county saw a 70% jump in the number of people filing for personal bankruptcy in 2008 over 2007. Tom Citerella, senior housing counselor at Neighborhood Housing Services of New Haven says there are many reasons why: the cost of living is accelerating beyond earning capacity; people have credit card debt or they’ve lost their jobs; and bankruptcy offers a way out. "Well right now we’re seeing a huge tidal flood of people who are in foreclosure or in severe financial distress in regard to holding onto their homes. Bankruptcy buys you time. This is sort of the final option. It buys you time. It literally freezes the foreclosure process."
He says bankruptcy has helped some of his clients to save their homes. Connecticut Senator Chris Dodd has proposed legislation that may also help. The bill would give federal bankruptcy judges the authority to modify mortgages for struggling homeowners.