Bankruptcy and equity in your home Part 1: What is equity?

Attorneys, paralegals and other legal and real estate professionals use the term "equity' regularly when talking about property. We forget not everyone knows the word or understands the concept. Some of my clients know what it is when I use the word, others quickly grasp the concept after I explain it, and some people are just too distracted by everything going on to fully grasp the concept and rely on us and the documents we present to calculate equity.

The equity in your home is the value of the property less the balance of the mortgage. So if your home is worth $100,000 and you still owe $80,000 on your mortgage, the equity in your home is $20,000 ($100K value of the home - $80K remaining on the mortgage = $20K you actually own in your home). Pretty simple, right?

What is the value of a home? Unless someone really negotiates a sale, we cannot "know" the true value. So we need to estimate value. One method is to use the real estate estimator sites on the internet. They can work well, and fortunately in this district, the trustees will normally accept an estimate from a better known site.

If the client thinks the real estate websites are off on their estimates, a person can ask a realtor to draft a market analysis. This is a more detailed review of the home and the area market for homes. Finally, a trustee may require a debtor to obtain a complete appraisal by a real estate professional. An appraisal can cost a few hundred dollars. This is the most detailed report on a home.

Once you have a value you believe to be accurate, you subtract the balance left on your mortgage from the value and you will have your equity ... basically the amount of your home you own or amount of money you would receive if you sold your home and paid off your mortgage. But, in a bankruptcy, we take one more step. We may be able to subtract the amount of money it would cost to sell the home. In this district, we can usually subtract 6% as an estimate of the real estate agent commission and other closing costs. 

This final figure is important because a debtor may only be able to keep a certain amount of the equity through an exemption. Because a person may limited to a certain amount they can keep or exempt, it is important to keep the estimated value appropriately lower to lessen the risk of not being able to exempt all the equity. The result of these calculations will be part of the decision of what chapter (7 or 13) to file under in a bankruptcy.  
   
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 or call us a 215-660-3170 and schedule an appointment.

#bankruptcy Chapter7 #Chapter13 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania

Is moving your money to new lower rate accounts really helping ...

Image courtesy of phanlop88 at FreeDigitalPhotos.net

It seems to me unsecure credit is really starting to open up and some creditors are really trying to get their cards into people's hands. Many times these cards with ultra low or no interest for a year or more. So what do people do if they have large credit card debts. They seem to move it to low interest cards. That may be a good idea; if they actually use the money they are saving on interest to pay down the principal debt on the card.

Unfortunately, many people use the reduced payments on the debts as extra spending money. What they do not realize is the interest payment that comes after the promotion period. After time, they end up building new debt on the old cards while barely making a dent in the transferred debt. Before the debtors know it, they have maxed out both the new and old cards and in deeper than ever before.

I you are thinking about moving debt to new low interest rate cards, make sure you afford to place all the savings back into paying the debt. Otherwise, you will just prolong the inevitable. You will continue to build debt with no hope of getting out. You will dodge creditors for another year or two. Finally, you will end up at the point you were trying to avoid; bankruptcy. If you are in too deep so cannot afford to pay the extra on your debts, don't do it.

Remember, "Let me tell you about the law of holes: If you find yourself in a hole, stop digging." The part after the colon in that version has also been attributed to American humorist Will Rogers.

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.

#bankruptcy #Chapter7 #Chapter13 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania

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.

Image courtesy of Mister GC
at FreeDigitalPhotos.net

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.

#bankruptcy #Chapter7 #Chapter13 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania