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Though the Columbian newspaper has reported that foreclosures statewide, Clark County (which includes Vancouver, WA) remains fourth in the state for number of foreclosures, and fifth in the state for percentage of homes in foreclosure. Cite: Foreclosures decline in Clark County, The Columbian, July 14, 2011. Foreclosure statistics from the real estate and foreclosure website Realty Trac show that foreclosures in Clark County and Vancouver, Washington remain high.

The Columbian article notes that foreclosures are down thirty-five percent from the same time last year. However, the Realty Trac data that the Columbian cites, still shows that some 248 homes are in some state of foreclosure in Clark County, which is much more sparsely populated than King and Snohomish Counties to the north. In gross numbers, the three largest counties in Washington (King, Snohomish and Pierce) have the most homes in foreclosure by a wide margin. Those same counties also lead in terms of percentage of homes in foreclosure, but Clark County is much closer in terms of percentage of homes in foreclosure. The most recent data from Realty Trac shows that one in 659 homes in Clark County are in some stage of foreclosure. This is in comparison to Pacific County (one in 619), Pierce County (one in 474), King County (one in 459) and Snohomish County (one in 351).

The high rate of foreclosures in Clark County may precipitate more new case filings in the Vancouver, Washington Bankruptcy Court. Foreclosures can be an indicator of many different economic influences, including dropping home prices, anemic home sales, tight credit markets, difficulty refinancing mortgages, and more generalized economic factors, such as unemployment. If homeowners are unable to keep up with mortgage payments, they may seek out protection by filing a voluntary bankruptcy petition, and discharging their debts.

In bankruptcy, the debtor can take actions that can further exacerbate the weakness in the housing markets, thereby precipitating more foreclosures. For example, in bankruptcy, the debtor has the option of continuing to pay mortgage payments or abandoning their home and discontinuing the mortgage. If the debtor chooses the latter, another home comes onto the market to be sold by the trustee, thereby increasing supply of homes, with a comparatively lower incentive to recover top dollar on the sale.

If the debtor files a Chapter 13 repayment plan, the debtor may be able to void a second mortgage (also referred to as lien stripping). In this scenario, the consumer may keep making payments on the first mortgage, but if the fair market value of the home is less than the amount owing on the first mortgage, the bankruptcy judge may void the lien held by the second mortgage, and then discharge the second mortgage as a unsecured debt. This can be perceived as a major benefit of filing bankruptcy, particularly in Vancouver, where home prices have fallen precipitously.

In summary, recent housing statistics indicate that foreclosures are fewer in number this year from the same time last year. The Columbian notes that the cause is not yet known. Whether fewer homeowners are falling into default, or whether mortgage lenders are not initiating new foreclosure proceedings due to a backlog of mortgages in arrears. In either case, the likelihood of a large number of foreclosures can significantly impact the number of Vancouver, Washington bankruptcy filings in the next year.

Debt settlement, debt consolidation and debt negotiation companies have proliferated into a ubiquitous fixture in radio advertisements, television commercials, and billboard ads. These companies offer to eliminate consumers’ debts by negotiating settlements for less than the full balance owing or for structured payments over time. Consumers are often attracted to these offers out of a desire to avoid bankruptcy. However, the problem is that these companies often take the last bit of a consumer’s money before the consumer is forced to file bankruptcy anyway. By then, their credit has been damaged worse than the bankruptcy alone would have caused.

Typically, a debt consolidation company instructs a consumer to stop paying their bills, and instead to pay the money into an account controlled by the company. This throws the consumer’s accounts into default status and starts the process of collection and charge off. This results in delinquencies appearing on the person’s credit reports, and causes collection efforts, such as collection calls and letters. The creditors may also refer the account to an outside collection agency.

Once the accounts are in delinquent or default status, the debt negotiation company may get involved, by trying to negotiate a payment plan, or a reduced settlement. The problem is that this is a house of cards, and one that creditors have gotten wise to.

For example, a consumer may have five credit cards. The debt settlement company may negotiate very favorable settlements with the first four creditors, but once the fifth credit knows that a debt consolidation company is involved, the last creditor can wait until the lion’s share of the consumer’s debt is settled. Then, the last creditor can sweep in and demand full payment, or just refuse to strike a deal. That last creditor can get all of the remaining money, or may not be willing to settle at all. Now that the consumer’s debt is reduced with the other four companies, that the final creditor has no incentive to take less than the full amount owed. This is all the more acute if all five of the creditors are staring one another down. The result is that the consumer may end up with delinquencies, charge offs, and collections on their credit report, and still have to file for bankruptcy.

It is true that bankruptcy will have a significant negative impact upon one’s credit rating. However, it is a one-time event that effectively draws a “line in the sand” and allows the debtor to hit the reset button. Once all of the dischargeable debts are eliminated, the consumer can start rebuilding his or her good credit. Instead of paying money to a debt settlement company, the consumer can go back to paying priority bills, like mortgage payments and car loans. After about two years, the effect of the bankruptcy will be greatly diminished, and consumers will be able to obtain conventional credit again. A good measure of whether bankruptcy is a good options is to consider whether the debtor will reasonably expect to pay off all of the debts which would be dischargeable in bankruptcy within two years. If the answer is yes, then bankruptcy may be avoided. However, if the debtor is resting their hopes on the debt consolidation company’s house of cards, bankruptcy may be a much better option.