Most people I speak with think that in order to file bankruptcy you have to have more liabilities than assets. In other words, you have to be insolvent. That’s simply not true and there are many times when filing a bankruptcy – particularly a Chapter 13 – will get you out of an economic mess even when you have plenty of assets.
I recently met with a client who is on the eve of losing his house to foreclosure. He is about $90,000 behind in house payments. At the same time he owns very valuable property in a nearby city with very little debt. He tried, unsuccessfully, to borrow against that property to save his house, but the banks turned him down. After all, they said, he’s in the middle of a foreclosure!
How did he get so far behind? Well, he wanted to modify the loan on his home. He was paying interest based on 2005 values (7.5%)! The bank told him to stop making the house payment while they reviewed his paperwork. Then they lost his documents and he had to re-file everything. Meanwhile, he got further behind in his house payments.
When the bank finally reviewed the modification paperwork, they suggested he try to pay off some other debt, so the ratio of debt to income would be right. He tried that, but it wasn’t good enough for the bank and he got further behind on the mortgage.
Meanwhile the foreclosure department sent a notice of foreclosure. My client tried to make a payment but since he was several months behind by that point, they wouldn’t accept it! “Not to worry,” said the modification department: “we only need to do one more review and everything will be fine.’ They did the review: and turned him down.
By now he was 6 months behind in mortgage payments and the bank was going forward with the foreclosure and refusing to accept anything short of full payment. So, fortunately he came to see a bankruptcy attorney – me.
We filed a Chapter 13 just days before the foreclosure sale. It will be a 100% plan since he has very little unsecured debt and lots of non-exempt property.
So, he will pay off the mortgage arrears over five years and pay the unsecured debt. At the end of the plan, he won’t owe anything except the on-going mortgage. And he will have stopped the foreclosure.
Meanwhile, he’s looking for a better bank!
image credit: wesjamison.com
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Last modified: June 3, 2013