Among the many reasons why I blog on this site is to give people a perspective of me that will help them decide whether I am the right attorney for them. Sometimes the things I write about concern my legal expertise in bankruptcy, and other times, I blog about my observations about bankruptcy law in this peculiar economic climate. And occasionally, I can write about real events that may, or may not, help readers understand why sort of an attorney they are getting if they pick up the phone and call.
This week, I received a call from a homeowner from an affluent Massachusetts suburb. This homeowner was a real estate professional – and I probably do not need to mention that real estate professionals of all shapes and sizes are taking a beating in this economy (and have been for some time). Like many in that industry, the income was sporadic, and at times nonexistent. Other than commissions from closings, there is no other source of income. The homeowner has not been gainfully employed with regular income since 2005.
The home mortgage has not been paid for almost a year and a foreclosure auction has been scheduled sometime next month. Credit cards have not been paid for at least 18 months. The homeowner has – like many – been consistently robbing Peter to pay Paul.
There is no equity in the property; the house is under water. The house also has an estimate market value of more than $575,000.
As the mortgage has not been paid, the only bankruptcy alternative for this debtor would be a chapter 13 (the homeowners debt did not exceed the Section 109(e) cap). However, for a chapter 13 to work, the homeowner needs income. And a chapter 13 is not a quick, cheap and easy process – unlike most chapter 7 cases. We could also explore requesting a modification of the mortgage, but a back-up plan – i.e., a chapter 13 filing – would be prudent if the modification was not approved, or if the lender refused to reschedule the auction pending the modification request.
I then asked an important question: “What do you have for cash on hand? How much money do you have now?”
The question is important because the answer tells me much. Since the mortgage has not been paid, I assume – or hope – that a homeowner has put some money aside to bring the mortgage current. In other words, they have taken some money as a “housing payment” and segregated it – either in a separate account, or in the same account with the discipline to not spend it. I also ask because it is important for me to gauge whether the homeowner will be able to afford chapter13 – not only in terms of fees and costs, but in terms of regular monthly payments to creditors and the chapter 13 trustee that in most cases, must begin shortly after the case is filed.
The debtor responded: about “$1,100.” Without missing a beat, the caller then offered assurances that money would come in the future, and that the homeowner could make it work. I declined representation. Here’s why.
First, the debtor was not technically a homeowner. They don’t own the home at all. There’s no equity, and with the way the economy is going, there is no reasonable expectation of appreciation in the property in the foreseeable future. While the caller reminded me that “this is my home, I’ve lived here for years.” But again, it’s actually not. So the chapter 13 petition and plan would not be there to preserve a home as much as it would be to preserve a lifestyle.
Second, I have learned the hard way that a debtor’s hopes of future income and making a chapter 13 plan work don’t amount to a hill of beans unless there’s money to fund a plan. Hope is not enough – an issue I discuss in my book Chapter 13 in 13 Chapters. While every chapter 13 case has some inherent risk, there must be some practical game plan in developing and proposing a confirmable chapter 13 plan.
And finally, while I practice law for a living, I also have a desire to be able to look myself in the mirror and at least tolerate the reflection staring back at me. What I learned from this homeowner is that despite every effort, income has not been sustainable since 2005 and the debtor has been living on credit and home equity while trying to make it in the real estate business. The debtor now holds a document declaring that an auction will take place before the summer ends. No job. Sporadic income. No meaningful assets. No equity in the home. And $1,100 to their name. Some might call it hope, others might call it denial.
I’m in the business of helping people move forward in their lives. I know what will make a chapter 13 work, and what will not. I cannot help someone that doesn’t understand that they cannot be helped the way they want. And I’m not the one who will take their last $1,100 only to watch them fail.
Related posts:
- 20/5 Redux: Things I Won’t Do
- Property Insurance and Chapter 13
- ‘20 Months Too Late’: Let’s Start Rethinking Mortgage Modifications in Chapter 13
- Storm Preparation: Plan B
- Hope is Not a Strategy
Tags: attorney, Chapter 13, Homes, Modifications and Workouts