06 Feb Should You Try to Keep Your Home When You File Bankruptcy?
This week an interesting article about Atlanta real estate appeared in a local business blog, and I think that the warning issued by the writer could apply to bankruptcy filers anywhere in the country.
Entitled â€œEasy Money as Landlord of Cheap Homes Proving an Elusive Dreamâ€ explains how large investment funds purchased thousands of Atlanta area homes following the 2008 – 2010 real estate crash with the idea of renting them out, securitizing shares in the investment venture, then selling the properties six or seven years hence when prices rebounded.
I had a first hand view of this business model because a close friend of mine in the real estate brokerage business worked with one of these investment firms and at times was writing hundreds of offers per week.
Politicians and newspapers report that the housing market is improving and prices are headed back up, but no one is looking beyond the raw numbers.
Now, according to the article, investors are not buying shares in these ventures and the funds are having difficulty finding qualified tenants and servicing the rental units. Congress is now looking at the business practices of these funds and it would not be surprising if civil and/or criminal prosecutions commence.
What does all this have to do with personal bankruptcy?
Filing bankruptcy, of course, is a personal financial strategy that should help you and your family eliminate or restructure debt and move forward with a liveable household budget.
Many bankruptcy filers own a home and usually they want to do everything possible to keep that home. In Chapter 7, this often means signing a reaffirmation agreement and in Chapter 13 this can mean curing a delinquency (arrearage) in mortgage payments over a five year plan.
Obviously it makes less sense to keep a home if prices are falling and if neighborhoods consist of renters rather than owners.
If you are a homeowner who is contemplating bankruptcy, I strongly urge you to spend some time learning more about your local real estate market. Has the â€œrecoveryâ€ of housing prices been driven by individuals buying homes for their own use, or has it been driven by investment funds buying homes as investment. If the latter, donâ€™t be surprised if we see yet another crash in home prices as these funds look to cash out and salvage their investments.
As much as your initial reaction may be to keep your home, doing so may not make sense because of market forces you cannot control. Bankruptcy allows you to walk away with little or no penalty and sometimes that is the best course of action.
Jonathan Ginsberg, Esq.
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