Bankruptcy and Foreclosure in Michigan – Part 1 – Keeping or Saving Your Home
June 27, 2014
As a tri-county area and Detroit chapter 7 law firm, questions about saving or giving up a home are part of our staff’s everyday conversations. Typically, the people that call our office fall into one of three categories:
- Those dead-set on keeping their home
- Those wondering what to do about it
- Those who are ready to bail out
Given the current state of Michigan’s economy, and because the state has been hit so hard with falling property values, this is a topic that deserves some consideration and examination.
So, what does a person do when confronted with foreclosure? What about those who are not in, or even near foreclosure, but who are having a hard time keeping up on their home payments? What about those who feel like they are paying too much for a home whose value is below what is owed on it (AKA underwater)?
If we examine, within the context of bankruptcy, each of the three typical kinds of people mentioned above, we can at least learn a little about some options for each. This first segment will focus on the first category.
Often, a call comes into our office from a person (married or single), who is stressed out about having too many bills. The caller realizes that they either have less income coming in than expenses going out, or they are just barely able to make the minimum payments on their bills. If they are already behind in payments, they know that they will be stuck in debt forever, just making minimum payments, and having no money left over to do anything worthwhile. They are sick of being “in the hole” and want to dump their debt. They are worried, however, about losing their home. Their home is the most important thing they have.
At the Law Office of Jeffrey J. Randa, we are homeowners. We understand the emotional investment many people make in their homes. Things like a great school district, or friendly neighbors, make the thought of walking away from your home very unpleasant. This type of caller is reaching out to a bankruptcy attorney because he or she wants to save their Michigan home at all costs.
Numbers Not Emotions
The first thing we try and do is help the caller detach themselves from their emotional concerns about their home. Emotional considerations are impediments to good business decisions. Your home is, after all, just a house—it is a building, not a person. If you were sitting down with an expert financial planner, he or she would never let emotions enter into the “business” of home ownership, or any other business considerations for that matter. These are cold, hard numbers we are talking about, not warm and fuzzy bunny rabbits. And make no mistake, family finance is not only business, it is your business. Perhaps … your only business.
So, we ask you to assume that you are describing your home and financial situation to the expert financial planner. Two questions then arise:
- Is keeping the home financially feasible? And, if so,
- Is keeping the home financially advisable?
If the answer to the first question is “no,” then there is no need to even consider the second. In order to answer question one effectively, a person needs to consider what other expenses they will have. If you live a few blocks away from work, and have no kids that need transportation, then perhaps you can live without a car, or with only one car.
Are you leaving enough money in your budget for food? Is there enough to cover utilities, clothes, medical and dental care, car insurance, and other unplanned expenses? As a guide, the United States bankruptcy courts make available the actual bankruptcy expense sheet they use. This can help you think through all of your monthly expenses. Take a look at the example below:
Example: John’s net income is $2,500 per month. He pays these monthly bills:
- $1,600 mortgage payment
- $300 car payment
- $100 car insurance bill
- $100 gas bill
Sounds like a good budget, but that leaves only $400 for food, utilities, clothing, and medical and dental insurance. What about cable television, or internet? Where is the money for any car repairs or other emergency expenses that inevitably arise? What about haircuts, and holiday/birthday presents?
Sometimes, after sitting down with an experienced Warren bankruptcy attorney and looking at these numbers in black and white, a person can truly see, for the first time, what they are dealing with. For some, the math works out, and there is enough income to keep the home. With a little belt-tightening, they can make the house payment.
Chapter 7 and Chapter 13
For those that have an income that supports their home payment and living expenses can enter into a debt repayment plan for the other debt they have. Bankruptcy law offers relief in a Chapter 13 plan. This requires repayment of at least 25 percent of a person’s unsecured debt over a period of three to five years.
The Law Office of Jeffrey J. Randa doesn’t handle Chapter 13 bankruptcy cases, but, if we determine that it is the only, or even the best option for a person, we advise them of that and even make a referral for a local chapter 13 specialist who can help them.
Most of the callers we hear from are miles away from being candidates for some kind of long and expensive repayment plan, however. They have too much debt, and not enough income. They want to get completely out of debt, and that is done by filing a Chapter 7 Bankruptcy.
Giving your home up in Chapter 7 bankruptcy allows you to avoid foreclosure and to walk away owing nothing. This is what many of our clients do. The worst thing a person can do is sit and just wait for something to happen. Pretty much every expert with a grain of honesty in them has pointed out that before things get out of hand, a person should call his or her lender and see if there is some way to save their home. The State of State of Michigan, HUD, and the State Bar of Michigan each have a good website with loads of helpful information. If there is no workable solution, then a person is left with the three options we have been discussing: Sell it, lose it, or walk away from it in bankruptcy.
The Bottom Line
The bottom line is that there are a lot of considerations, but they can be prioritized by asking the two questions we have been discussing: Is it financially feasible to keep the home? If so, is it financially advisable to keep the home?
The sad truth is that some people are unable to look at their situation objectively, and will either take no action, or keep doing financially inadvisable things to stay in their home. In the long run, unless they win the lottery, or are suddenly offered a new, high-paying job, they are only putting off the inevitable.
Other times, after looking at the numbers, people see where they can make some lifestyle changes, and that it is possible to keep their home. As a Detroit bankruptcy law firm whose goal is to help people (after all, we make no more and no less whether someone keeps their home or not), our hope is that you make the right decision, one that will have a beneficial impact on your life and finances. Most Michigan bankruptcy attorneys, our firm included, want, more than anything else, to help people make the best choices about their financial future.
Before those choices can become clear, however, a person must take an honest, unemotional look at their situation. That means that even if a person is dead-set on keeping their home, they first have to open themselves up to an honest analysis of their financial situation before they can make the “right” decision, whatever that may be.