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.

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Hiring Has Not Picked Up: A Look at Unemployment Claims Stats

The number of newly laid-off workers seeking unemployment benefits unexpectedly rose last week, further evidence that the job market recovers at a very slow and bumpy pace. California, Texas, Florida, Pennsylvania, and even Georgia have experienced the highest recent increases in unemployment claims.

Wall Street economists had expected a small drop, but according to the Labor Department, initial claims for unemployment insurance actually rose by 36,000. An analyst from the Labor Department said that much of the increase is due to the administrative backlogs left over from the holiday season in the state agencies that process the claims.

Regardless of the ups and downs shown week to week, the economy is not consistently generating net increases in jobs. After adding only 4,000 jobs in November, which was the first increase in nearly two years, in December employers cut 85,000 jobs. Many economists say the four-week average of claims will need to fall to below 425,000 to signal that the economy is close to generating net job gains. Unfortunately, the four-week average rose for the first time since August to 448,250.

The number of people continuing to claim regular benefits dropped slightly to just under 4.6 million. However, this data does not include millions of people who have used up the regular 26 weeks of benefits customarily provided by states and are now receiving extended benefits for up to 73 additional weeks, which is paid for by the federal government. Over 5.9 million are receiving extended benefits in the week ended Jan. 2, which is an increase of more than 600,000 from the previous week.

These numbers demonstrate that even as layoffs are declining, hiring has not picked up, leaving people out of work for extended periods of time.

California has had the largest increase in claims, with 16,160. Texas, Florida, Pennsylvania and Georgia have the next largest increase. Oregon has had the biggest drop in claims, of 5,784, followed by Iowa, Kentucky, Michigan and Massachusetts.

There are positive forecasts out there as well. Because unemployment claims have been on a steady drop since last fall as companies cut fewer jobs, some economists hope that hiring will soon increase. Another report suggests that economic growth could pick up this spring.

Other economists, however, have been worrying that growth in the economy will stagnate this year as government support programs wind down and unemployment remains high.

Posted in 5 9, Blog, Economists, Georgia unemployment claims, average, benefits, claim, claims wall, dropped, extended, four week, increases, laid off, newly, pick, receiving, regular, rose, seeking, slightly, spring other, street, the, unemployment, unexpectedly, workers | Comments Off