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.

