Bankruptcy Questions Answered

Should You Save Your Home from Foreclosure, or Should You Let it Go

With the news full of foreclosure statistics showing huge increases along with stories of self-righteous Members of Congress asserting their heartfelt concern for "struggling homeowners" little attention is paid to the question of whether a homeowner ought to fight to save his home.  My friend and colleague, Charleston bankruptcy lawyer Russ DeMott were recently discussing this issue and I invited him to prepare a guest post about this very topic:

Chapter 13 bankruptcy is a tool that can be used to save your home from foreclosure.  But the big question sometimes isn’t “can I save my home,” but “should I save it?"

We all know that there’s been an epidemic of foreclosure resulting from the recent economic downturn.  Jobs were lost, values plummeted, and foreclosures have been on the rise.

So it’s natural to wonder, “can I file Chapter 13 bankruptcy to save my home from foreclosure?”  However, when you meet with a bankruptcy lawyer to explore your options, you need to explore all your options—bankruptcy and otherwise.  And that might be not saving your home.

When you’re having financial problems and seek advice, you should take the opportunity to review your entire financial situation.  Can you afford your vehicle payments? Can you “tighten the belt” and cut back on some unnecessary expenses?  And most significantly, “should you try to save your home?”

In my Charleston, South Carolina bankruptcy practice, I get calls every week from folks facing foreclosure.  The potential bankruptcy client’s question is always a “can we?”  Can we stop foreclosure?  Can we make the lender listen?  Can we catch up on these payments we’ve missed?  Can we protect our home? Can Chapter 13 bankruptcy help?

But I always focus on the “should we.”  Here are some factors to consider when deciding whether you should use Chapter 13 to keep your home:

• Can you afford the mortgage payments?  Do you have large house payments you can’t really afford, perhaps with more than one mortgage?  For example, it may be that you can afford payments of $1800 a month, but your current payments are $2800 per month.  Absent a mortgage modification, that’s a tough nut to crack every month.
• Is your interest rate scheduled to adjust?  It may be that you can afford your payments now but maybe not once your payments adjust.
• Do you have equity in your home?  (Equity is the value of the property less any liens (like mortgages, outstanding taxes, assessments, and home owner’s dues).  Lately, I’ve been getting calls from clients who not only have no equity, but actually have “negative equity.”  For example, your house might be worth $250,000 and you owe $350,000.  If that’s the case, you might not want to try to save your home from foreclosure.  You’d actually have more equity if you rented!
• Is this where you want to live for the indefinite future?  If not, perhaps you should use your financial problems to reevaluate where you want to live.  Perhaps renting in another area would lessen your commute or allow your children to enroll in a better school?

These are just a few factors you should consider.  You should weight all the pros and cons of saving your home. You can then have your bankruptcy lawyer help you decide whether filing Chapter 13 bankruptcy to save your home really makes sense.

Jonathan's note: in addition to the very relevant points Russ makes, let me add this:  if you decide that saving your house in a Chapter 13 does not make sense, a "fresh start" Chapter 7 could be appropriate.  Similarly, you can still file a Chapter 13 to reorganize  your other debts while you surrender your home.   My point – personal bankruptcy is not a "one size fits all" solution – a good bankruptcy lawyer can offer you several options to consider, many of which you may have never considered.

If there is one lament that I hear from my colleagues, it is this – "I wish my clients would call me earlier, when there is time to evaluate bankruptcy and non-bankruptcy options."  Sometimes, when there are only days or hours to go before a foreclosure, an emergency Chapter 13 may be your only choice.   Even if bankruptcy is something you really do not want to think about, you would be wise to establish a relationship with a bankruptcy lawyer before you end up facing a crisis.

Posted in 2800, Bankruptcy, Chapter 13 issues, Foreclosure, Foreclosure issues, Lawyer, Mortgage, Russ Demott, a, absent, bankruptcy and foreclosure, charleston, client’s, consent to foreclosure, contest foreclosure, deed in lieu of foreclosure, demott, equity, facing, folks, foreclosure  , home when, home  , home ” in, huge, increases, modification, month  , my, oppose foreclosure sale, potential, question, russ, save, saving, showing, statistics, the, you’d, you’re | Comments Off

Afraid that You Could Lose Your Job if You File Bankrutpcy? The Law Says “No,” but….

Last month, my friend and colleague, Charleston bankruptcy attorney Russ Demott published an interesting article on his web site entitled "Fired for Filing Bankrutcy? No way!" This article was written by Elyria, Ohio bankruptcy lawyer Bill Balena, who notes that the Bankruptcy Code specifically forbids "employee discrimination" based on a bankruptcy filing if:

• You are, or have gone through a bankruptcy proceeding
• You are insolvent either before filing a bankruptcy or while your petition is pending;
• You have not paid a dischargeable debt

Let's take a closer look at what the Code actually says.  Pay particular attention to the different language that applies to government employers vs. private employers.

Section 525 of the Bankruptcy Code contains the following language:

As to governmental units:

[with limited exceptions] a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

As to private employers:

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

As you can see, the restrictions on discrimination are not identical.

Specifically the limitation on governmental action against insolvent or bankrupt employees or job applicants includes the following prohibitions:

• deny employment to
• terminate the employment of
• discriminate with respect to employment against

By contrast the limitations on private employers against insolvent or bankruptcy employees includes the following prohibitions:

• terminate the employment of
• discriminate with respect to employment against

Now I have not litigated this issue – but I think that a private employer could make a strong argument that the Bankruptcy Code does not forbid denying employment to an insolvent or bankruptcy individual who is applying for a job.

Further, as Mr. Balena points out, if you are applying for a job as an "at will" employee, a prospective employer does not have to explain why he is not hiring you – it can be for any reason.  I can't imagine that too many employers would specifically put into writing that you are not being hired because of your credit issues.

In my view, within the context of private employment, Section 525 protections have much more relevance to an employee who already has a job as opposed to a job applicant.  Further, I think that Section 525 is somewhat of a toothless tiger in that few employers would specifically identify a bankruptcy as the sole reason for termination (note the language "solely because").

As a practical matter, I cannot recall the last time I observed or even heard of a bankruptcy debtor facing termination or a refusal to hire because of a bankruptcy filing.  The sheer numbers of bankruptcy filings in the Northern District of Georgia, for example, are such that almost every company of any size has had one or more employees go through the bankruptcy process.  Still, I counsel my clients that Section 525 offers very little in the way of real protection and that there is some risk, even if it is small, that their bankruptcy filing could have a negative impact on employment.

Posted in 525, Attorney, Bankruptcy, Consumer Protection, General consumer bankruptcy info, an, article, bankrupt, charleston, demott, deny, discriminate, discrimination, employees, employers, employers section, employers and bankruptcy filings, employment, government, identical specifically, includes, insolvent, interesting, job termination and bankruptcy filing, limitation, private, prohibitions, published, respect, russ, section 525 of bankruptcy code, terminate, the, vs | Comments Off