Financial challenges such as a sudden medical bill or termination of employment may require individuals to seek debt relief, especially if he or she is a homeowner. A bankruptcy is a common way to stop foreclosure proceedings, and homeowners may also receive help from the nationwide foreclosure settlement.

The five largest mortgage banks in the country agreed to a settlement of more than $20 billion as a result of the robo-signing scandal in the mortgage industry, in which banks improperly foreclosed on thousands of homes by using faulty documents. These mortgage banks include Ally Financial, Bank of America, Chase, Wells Fargo and Citigroup. A progress report from the independent monitor of the settlement shows that 1,873 homeowners in Wisconsin received aid between March 1 and Sept. 30.

The progress report also shows that 498 of these homeowners lost their homes. These homes were sold with a short sale, requiring the lender to forgive the deficiency in the mortgage under the terms of the settlement.

The portion of the settlement that went to homeowners in Wisconsin totaled $86.2 million, which is an average of $46,025 for each eligible borrower. The average amount of the mortgage deficiency was $19,358, providing an average benefit of $65,383 for each borrower who sold their home through a short sale.

The legal options for individual bankruptcy include a Chapter 7 and Chapter 13 bankruptcy. A Chapter 13 bankruptcy would put a halt to foreclosure proceedings, which could give a borrower time to get his or her finances in order. Most Chapter 7 bankruptcies also allow filers to keep their primary residences.

Source: Wisconsin State Journal, “Property Trax: More than one-quarter of Wisconsin residents helped by mortgage settlement still lost homes,” Karen Rivedal, Nov. 23, 2012