Real Estate Sales Agents and Commissioned Salespeople – Not a Good Fit for Chapter 13?

18 Feb Real Estate Sales Agents and Commissioned Salespeople – Not a Good Fit for Chapter 13?

I get a lot of questions from visitors to my Atlanta bankruptcy blog or Georgia bankruptcy law web site that include detailed fact patterns and requests for an in-office consultation. Many of these callers or emailers turn into clients. But not all of them do.

Today, I spoke to a woman about a potential case and I advised her not to file. I thought it would be interesting to describe her situation and explain why I felt like her case was not right for bankruptcy.

My caller was a woman in her 40’s who was self employed as a real estate agent. About a year ago, she and her significant other had purchased a home for $375,000. They then put about $40,000 worth of improvements into the house. The housing market in the Atlanta area has been somewhat depressed and my caller says that she believes that the home is worth around $400,000. The total debt on the property is around $360,000.

Together, she and her boyfriend earn between $60,000 and $80,000 per year. He is also employed as a commissioned salesperson, which accounts for the variation in income. My caller has about $75,000 in credit card debt, all of which is in her name.

My caller had filed an individual Chapter 7 about 7 years ago, which would make her ineligible for Chapter 7 now, but even if she did not have a previous filing, her household income is above the median income for a two person household in Georgia to the point where a means test analysis would result in significant disposable income. Thus, the only possible bankruptcy option here would be a Chapter 13.

Based on her income, her equity and the presence of a $400,000 house (in the Atlanta area, a “starter” house costs around $150,000 to $175,000), I feel fairly certain that the Chapter 13 trustee would want to see a 100% payback to unsecured creditors.

Given that my caller and her boyfriend are both commissioned sales people, I see Chapter 13 as very problematic. Many of the Chapter 13 cases I have filed for commissioned sales people – especially real estate sales agents – have not worked. Chapter 13 requires a consistent, regular source of income and the residential real estate business is so seasonal and unpredictable, I think it makes a poor funding source for Chapter 13.

In this case, because we would almost certainly need a 100% payout, I advised my caller to try Consumer Credit Counseling or Dave Ramsey’s Debt Snowball technique. I also suggested that she consider selling her house to eliminate the equity issue and the luxury house problem. I advised her that we could revisit the bankruptcy option when she hit the 8 year anniversary of her Chapter 7 filing, but that, in my opinion, the cost, aggravation, and likelihood of failure of Chapter 13 outweighed the benefit to filing.

Reputable bankruptcy lawyers like my colleagues who bring you the Bankruptcy Law Network blogs recognize that not every caller should be advised to file bankruptcy. My caller may end up back in my office in November or December. However, other options should be considered and ruled out first.

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Jonathan Ginsberg, Esq.

I represent individuals in Chapter 7 and Chapter 13 cases filed in the Northern District of Georgia, which includes Atlanta, Newnan, Gainesville and Rome. I publish several informative web sites, including and an Atlanta bankruptcy blog, Please mention Bankruptcy Law Network when you call.
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