McLeod Law Offices

Over the last two years or so, I’ve seen a particularly troubling trend with homeowners seeking bankruptcy protection.  It is making bankruptcies unnecessarily complicated and expensive.  It also puts them at a greater risk of failing – at least once (which at the very least, makes it more expensive).  It’s the trend for them to wait until the very last minute to actually consider bankruptcy as an option.  This is a bad, bad idea.

Years ago, I would hear from callers who had oppressive credit card debt, medical bills and had experienced some sort of major life event: job loss, medical crisis, death in the family, or divorce.  That debt was getting out of control, but their real estate was usually current….or perhaps was approaching default but not in foreclosure.  They could see the handwriting on the wall; they could see the storm clouds on the horizon.  They needed to prepare for what they thought was inevitable. Nowadays, it’s usually quite different.

Now I typically hear from callers who are facing foreclosure within 2-3 weeks, and if they (and I) are lucky, they have more than a month before the scheduled auction.  The reasons are essentially the same: many are losing jobs, wages and overtime is getting frozen or eliminated, mortgage payments and other debts have creeped up.  There is also the occasional debtor with a health care issue or some other extraordinary set of circumstances. The bankruptcy filing can delay the sale, and give the debtor an opportunity to reorganize finances or even secure a loan modification.  But think about this – if you Google “GM Bankruptcy” you will see that pundits were talking about GM’s bankruptcy last fall (look under archives).  I am willing to bet GM was at least thinking about it was well.  I’m also willing to venture that GM was preparing for the possibility of having to file bankruptcy.  For homeowners, there’s no good excuse to be waiting until the auction has been scheduled and the notice has been published to be at least considering and planning a bankruptcy filing.  Think of it as Plan B.

Unfortunately, to homeowners who are attempting to secure a modification of their loan, I have some bad news.  Lenders are not all that organized themselves: it’s not altogether uncommon for the foreclosure department who is handling the auction not to be speaking to the loss mitigation department who is handling the modification and vice-versa.  Perhaps this is what happens when we let companies get too big to fail.  I realize that this lack of communication protocol may seem strange if not completely asinine, but this has been my experience, and my colleagues who represent lenders have shared their frustrations with me on this issue as well.  Thus, your request for modification will not necessarily stall a foreclosure.

Of course, filing a properly prepared chapter 13 bankruptcy petition takes quite a bit of work.  And documents.  And information.  And good counsel.  Tax returns need to be filed.  Pay stubs or payment advices need to be gathered.  Property needs to be valued.  The Bankruptcy Code requires that documents be filed within a certain period of time after the case is filed. A typical bankruptcy petition – along with a chapter 13 plan – can exceed well over 45 pages.  And chapter 13 plans require some thought, strategy and expertise.

If a debtor seeks bankruptcy protection but does not have this information properly prepared when the case needs to be filed, an Order to Update will enter.  The Bankruptcy Court will order that the debtor file all documents by a date certain: anywhere from 3-14 days.  Need an extension?  You might get one.  You also might not.

I am increasingly finding that debtors simply do not have the information needed within the 3-14 day period.  Sometimes I can get an extension.  Sometimes I cannot.  Sometimes the pro se debtor cannot get one and that is the first time they pick up the phone and speak to a bankruptcy attorney.  The delay, the motions, and frankly, the hunt for this information under the pressure of a strict time deadline only adds to the expense and increases the risk for error.  It also does nothing to quell the anxiety of what is undeniably a stressful situation.  Sadly, this is all fueled by debtors who are considering bankruptcy only within weeks, days or in worse case scenarios hours before a foreclosure auction is scheduled to move forward.  And in many cases, their delays prove costly, and may also lead to their case imploding.

If you are a homeowner who is serious about saving their home and attempting to keep what you have worked hard for, then you must consider bankruptcy as an option at the earliest opportunity.  This way, you can start gathering information and be ready to go if the mortgage modification doesn’t come through.

Of course, there are others out there who I know are telling folks not to think about bankruptcy.  There are others who mislead with claims that bankruptcy protection is harder to get now.  If you rule it out the bankruptcy option without getting the facts, speaking with a bankruptcy attorney, and understanding process and what will be expected of you in that process, I promise you this: you will regret it.

Anyone that tells you differently is selling you something.