Bankruptcy - “Can I keep my house?” - is that the best question?

Most clients come in and ask, “Can I keep my house?” The better question might be, “Should I keep my house?” A home is a sacred belonging in our society and holds great sentimental value to many families. I get it. Plus there are practical considerations about giving up a home and moving. But the reality is … in many bankruptcy cases … the home has no current value. In many cases, the house is at break-even or underwater. In those cases, I talk to my clients about surrendering their home.

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Times are not what they once were. I bought my own home in 2008 and I do not think it has appreciated more than $10k. If a client is $20k, $30k, $40k, or more underwater, how long will it take to get even or gain some value? I don’t know but I am guessing not soon in the current climate. So people should really ask themselves is keeping the house a help to getting a new start?

Some make the argument, the mortgage is the same or less than rent. There is some merit to that argument. One problem is everything else … taxes, maintenance, repairs on the house as well as contents in the house (like a broken oven), etc. Renting limits exposure to additional costs.

I once had clients who kept their townhome through a bankruptcy. They were upside down on the mortgage but kept it anyway. About 6 months later, they called me with a water problem. They believe the grading of the grounds outside the home caused the rain runoff to roll into their unit (not the type of cases I work). They found mold under their siding and carpets. They were just coming out of the bankruptcy and did not have the funds to fix it or litigate it with the homeowners’ association to repair the grading and damage.

They did not reaffirm the mortgage so they could still walk away. But they  spend 6 - 9 months of mortgage payments they could have used to plan their exit and sustain a new rental home for their family.

Many clients think the would need to leave the house immediately when they file for bankruptcy. That is not true. The mortgage company would need to ask the bankrupcty court’s permission to start or continue a foreclosure action. This takes time. While that is happening, the family can stay in the house. Once the bank gets a judgment in the foreclosure, it still needs to schedule the sheriff’s sale. All this takes time. This is time a debtor can use to prepare for the next steps after bankruptcy. He or she can save the money they would be paying on their mortgage.

While I know many of my clients will not leave their homes if they have any chance of saving them, it is a discussion debtors should have with their bankruptcy attorneys.

If you want assistance, legal representation, or just want to know more about Mark Medvesky or our firm of Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

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