The difficult decision of whether to keep an undervalued home.
The difficult decision of whether to keep an undervalued home.
Of many of the discussions that our office has with prospective bankruptcy clients, the decision whether to keep the home is one of the more wrenching. This is, of course, expected, given the emotional if not financial attachment most Americans have with their home. It is recognizably one component of the American Dream, to own your own home.
In these harsh economic times, however, many times I must counsel our clients to let the house ‘go’. The reasons can be many and nuanced, but generally, there is no perceivable equity in the real property and the payments to maintain the home are, or soon will be, too high to make. Sometimes, I will counsel clients to try and keep the property, if a lien strip of a junior trust deed can be effectuated in a Ch. 13 filing.
Now, to be sure, I have counseled clients to let their undervalued and expensive automobiles be returned, to save their cash flow, and that counsel has been difficult. Therefore, advising folks to abandon their home is even more difficult, but oftentimes necessary to become financially whole.
In my view, the current economic crisis is not abating and as it relates to housing, will continue to press down on home values for 3 to 5 more years. Given that, I can see no compelling reason for families struggling with mortgage payments on undervalued homes, to keep up the fight to retain that particular house. There will be opportunities after bankruptcy, and again, if I’m right, there will be many opportunities, as home values will continue to stay depressed, interest rates will stay low, and home affordability can likely be had, even after bankruptcy.
Now, this does not mean I counsel all my clients to abandon there homes. Nor do all my clients take my advice, for that matter. As mentioned, there are nuances that must be discussed with an attorney before the decision is made to abandon the payments and allow a home to be foreclosed or a short sale is undertaken. The timing of these events, before or after the filing of a bankruptcy can be important, critical, and crucial. Please be sure to speak with a bankruptcy attorney before you decide let the house go, as that decision can make or break your ability to file a successful Ch. 7 or Ch. 13 bankruptcy.
John C. Colwell, Attorney at Law
Member, Board of Directors, NACBA
www.nacba.org
