How Will Serious Flood or Natural Disaster Damage Impact My Bankruptcy Case?

07 Oct How Will Serious Flood or Natural Disaster Damage Impact My Bankruptcy Case?

2011 has been called “The Year of the Natural Disaster”. We have seen deadly tornadoes, massive floods, billion dollar blizzards, devastating drought, East Coast earthquakes, and Texas wildfires…oh my!

Millions of Americans have had their lives seriously disrupted this year. Many of them were in Chapter 13 bankruptcy cases at the time of the disaster, and had to not only to pick up their lives, but also had to decide what to do with their Chapter 13 case.

Chapter 13 cases usually last between 3 and 5 years. When you file a Chapter 13 you don’t always know what will happen in your life in the upcoming years. Often there are unplanned events that cause the best Chapter 13 plans to fail, or need serious adjustment, which is one of the great advantages of a Chapter 13 over other forms of bankruptcy.

Such is the case in my area of the Southern Tier of New York State, where we had our second “500 year flood” in the last 5 years. Here are some examples of the issues some Chapter 13 Debtors have had since the September 8th flood:

  1. The flood damaged three properties belonging to one Chapter 13 debtor. She had severe damage to her residence, and suffered a near total loss to a rental property and to her business property. She must now make decisions on what to do with each of the properties. She had flood insurance for $203,000 on her residence, but the insurance company will only give her 50% of that figure and estimates are $147,000 for the repair. She has been told to get an SBA loan for the remaining cost, but because she is in the Chapter 13, SBA will not loan to her. The other two properties were being partially paid in the bankruptcy. She will probably have to modify her Chapter 13 plan to surrender these properties.
  2. One couple had no flood insurance for the damage to their finished basement. FEMA said they would not help because their particular damage came from water runoff from the hills, not directly from the flood. They will have to do all of the needed clean up and repair out of pocket, but all of their disposable money is designated to go to the Chapter 13 Trustee. They have asked and received permission to skip their September and October payments to the Trustee, but that is not going to be enough to cover the costs.
  3. Another couple had more damage to their home than FEMA is willing to give them, so they will have to walk away and file a modification to their Chapter 13 plan to surrender the property and stop paying arrears in the plan.
  4. One Chapter 13 debtor is not paying mortgage arrears in her plan, but still owes close to what the house was worth prior to the flood. She is hoping that her house is condemned so she can get a buy-out. In the meantime her family has moved into her Mother’s house and wants to use the FEMA money she received to fix up her mother’s house so they can live in it permanently. They also lost a car in the flood and want to use the insurance money to replace the car, if the trustee will allow it.
  5. One couple had flood insurance and received $10,000 to replace their furnace, hot water heater and electrical system. The insurance check was made out to them and their bank, but their bank will not release the money without making them go through many additional procedures because they are in a bankruptcy case.
  6. One unfortunate woman had planned to sell her home and get a smaller home. She had received permission for the sale from the bankruptcy court, and had a closing scheduled two days after Tropical Storm Lee came through. The closing was cancelled and the home was destroyed. FEMA gave her $33,000, which is only a fraction of what she had expected from the closing.
  7. An elderly Chapter 13 couple received $26,000 from FEMA to make home repairs. Instead, they want to walk away from their seriously damaged home and use the money to move into a senior housing unit.
  8. Another Chapter 13 debtor who had flood insurance also received a two party check to her and her mortgage company. The bank will not disperse any money until all of the work is completed, but she can’t come up with any money to lay out for the repairs. To make matters worse, the property is a duplex and cannot be lived in until it is fixed up and approved by the town code department. She not only has to live with her family, but has lost her rental income which she needs to keep up with her payments to the trustee.
  9. One problem several Chapter 13 debtors are facing is that a month after the flood, they are still waiting to hear from FEMA and/or their town as to whether there will be any buyouts offered for their condemned former residences.

Many of the millions of people who were affected by natural disasters this year will be speaking to bankruptcy attorneys to find out their options. Others, may feel that they shouldn’t consider bankruptcy under any circumstances. If you know people like that, do them a favor and suggest that they find out all they can about ALL of the options open to them. A trained, experienced bankruptcy attorney can help people throughmany of the difficult times that inevitably follow a natural disaster.

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.
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