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Following a trend we reported regarding bankruptcy filings in the U.S. Bankruptcy Court Middle District of Florida last month, the number of individuals in the southern part of Florida who are filing for bankruptcy is down. According to U.S. Bankruptcy Court data, compared to August 2010, the number of bankruptcies in August of this year has fallen almost 21 percent. Though the number is down from a year ago, it did creep up 1.36 percent in August 2011 from the preceding month.

The cause in the drop of bankruptcy filings is thought to be the same as in our last post on the topic. A lull in foreclosures brought on by the robo-sigining scandal, a procedure that was widely used by banks in the past wherein foreclosure documents were signed by bank employees without first reviewing them, is to blame. In addition, the drop is also being attributed to unemployed consumers not being able to afford to pay for a bankruptcy proceeding.

Filing for bankruptcy stops the foreclosure process, allowing homeowners to start repaying the amount due on the mortgage. When houses are not being foreclosed upon, the pressure to halt the foreclosure using the bankruptcy process is relieved.

Many people who are seeking to save their home by filing for bankruptcy will file for Chapter 13 bankruptcy. This type of bankruptcy is commonly known as a reorganization. In a typical Chapter 13 proceeding, an individual works with an attorney to craft a repayment plan to pay back some of the debt owed to creditors. The plan usually lasts three to five years. At the end, remaining debt is usually discharged.

In August of last year the consumers filing for bankruptcy numbered 3,387. This year, the number was at 2,690. It is likely this number will rise when the foreclosure pace again picks-up.

Source: Sun Sentinel, “Bankruptcies fall 21 percent in August,” Marcia Heroux Pounds, Sept. 2, 2011