What You Need To Know Before Filing For A Personal Bankruptcy Action
Since the beginning of the recent housing crisis, I have had the experience of working with clients who have fallen behind with mortgage payments which resulted in the mortgage lender filing a foreclosure action with the Court. This course of events often leads to the filing of a personal bankruptcy action to discharge the mortgage indebtedness. In order to get the information to write this article, I chose to interview my son, who will be known as CS, and a divorce client, who will be known as RP. CS and RP have some commonalities: (1) both had experienced a divorce proceeding; (2) both had experienced a decline in the value of their homes causing them to be “upside down”; and, (3) both of them had support obligations (child support or spousal support) resulting in each having less disposable income with which to pay their monthly mortgage payments. Having a house be “upside down” simply means that the amount of the mortgage balance is far greater than the actual fair market value of the home. Both men filed a Chapter 7 Bankruptcy proceeding resulting in the complete discharge of their mortgage indebtedness. While RP had to pay $2206 to his attorney in Ohio to file his Chapter 7 proceeding, CS only had to pay $700 to his attorney in Illinois to file his bankruptcy proceeding. The proceeding, from the initial filing until the Discharge of Debtor, took approximately four (4) months for each party.
Bankruptcy Question #1
I next asked each party to tell me the primary reason each elected to file a bankruptcy proceeding. CS responded that he filed because his home was “underwater”. That term is used interchangeably with “upside down”. In his situation, the home had been purchased in 2004 for $252,000. A privacy fence, deck, patio, and other improvements were made resulting in the home having a fair market value of $275,000. When the home was later appraised in 2010, its fair market value was determined to be only $140,000, a loss of $135,000. To the same question, RP responded that he filed bankruptcy primarily due to the effects of the divorce proceeding. In his case, Wife was not employed and had little expectation of becoming employed due to health, age, and lack of work experience. Accordingly, his Wife was awarded spousal support for a ten year term certain and his income would be used to support two (2) households instead of just one.
Bankruptcy Question #2
I next asked each party if they had any regrets about filing the bankruptcy proceeding. RP responded that he certainly had regrets about the Chapter 7 proceeding. He had personally designed his home and did much of the work in building the home and he feels sadness and regret about losing it. CS responded that he had no regrets financially, but will miss the house if he is unable to buy it back in the future.
Bankruptcy Question #3
The next question was: “If you had it to do over again, would you choose not to file a Chapter 7 proceeding?” RP stated that if he had to do it over again, he would have taken better care of his finances and not permitted his home to become collateral for so much credit card indebtedness. CS responded that he would have taken the same course of action and filed the Chapter 7.
When asked if either party faced any stigma within their family or workplace, both responded that they faced no stigma or criticism from their employer(s) or fellow workers. But, both replied that they felt some initial stigma or concern from family members who encouraged them not to file a bankruptcy action.
Both men remain living in their homes and expect to remain there for at least another eight to nine months until their homes are sold at a sheriff’s sale. They will be given a “Notice to Vacate” approximately one month before they must relocate from their homes. Although neither party is paying on the mortgage indebtedness, the mortgage lenders permit them to remain in the properties as it is more advantageous to the lenders for the homes to be occupied than for the homes to be vacant where the properties could be vandalized, stripped of copper piping, and robbed of appliances and other fixtures. And, it is better for the homes to be maintained with utilities in use than for the homes to be vacant and without heat in the winter or without air-conditioning in the summer. In short, it is better for the lenders to have the homes occupied than to have them vacant!
Bankruptcy Question #4
I next asked the two parties if the mortgage holder(s) had been willing to negotiate a lower monthly mortgage payment or a lower payoff balance on the mortgages in order to prevent the foreclosure action(s). Both men responded in the negative!
Bankruptcy Question #5
My final question to CS and RP: “Is there anything you would like to convey to me that I could pass on to our readers about the experience of taking a personal bankruptcy proceeding?” RP responded as follows: Try to create a monthly budget and try to live within your means in order to avoid a bankruptcy proceeding. He felt that by creating a budget and by adhering to that budget, persons would be seeing “green lights” (good times) instead of “red lights” (bad times)! CS responded as follows: I was raised to pay my bills and not to walk away from financial responsibilities. I simply could not pay for a home that had declined in value by the sum of $135,000. Keep your credit cards current and keep your relationships with creditors in good standing.
Solving Financial Burdens With Bankruptcy Referrals At HCMM
While the attorneys at Holzfaster, Cecil, McKnight & Mues do not practice in the Bankruptcy Court, we have many professional colleagues with whom to refer clients who may be considering bankruptcy. And, we have professional relationships with mortgage lenders, banking officers, and other financial planners with whom to work to address and solve your individual needs.
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Anne Shale is of counsel to Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues. She is a former registered nurse and concentrates her practice in Family Law and Divorce cases.