My colleague, attorney Scott Riddle, posted a very interesting observation in his Georgia Bankruptcy blog about the bankruptcy implications of Clayton County, Georgia’s school accreditation fiasco. For those unaware of the situation, the Clayton County School System is about to become only the third school system within the past 20 years in the United States to lose its accreditation.
Scott points out that if Clayton County loses its accreditation, graduating students will not be eligible for Hope Scholarships (Hope Scholarships are lottery funded scholarships to schools in the Georgia university system and have offered a greatly reduced higher education costs to thousands of Georgia college students). With a school system in a mess and eligibility for Hope Scholarships withdrawn, residential real estate prices will fall, home buyers with school age children will avoid Clayton County and the county’s tax base will fall. Scott correctly advises:
If you are a homeowner in Clayton County and you find yourself in Bankruptcy, think twice before reaffirming your mortgage debt. Even if you qualify for a reaffirmation and your home is worth the amount of debt, it might not be the case for long. You might be signing up for post-petition personal liability for the mortgage on a home that decreases significantly in value in the coming months and years. You could be locked into staying in Clayton because you cannot sell, selling your home at discount and paying the difference, or a foreclosure. You will owe the full amount of your mortgage (including interest and fees) after your discharge. Again, think twice.
While the Clayton County situation is somewhat unique, it does raise an important point about home reaffirmation in general. It is not always a good idea to reaffirm a home or a car. You should look forward, not backwards, when filing a bankruptcy. Too many times I have heard the argument "I can’t give up that car because I have invested too much in it." In my view, that kind of argument is ridiculous. Bankruptcy should be used to eliminate obligations that you can’t afford, not validate bad decisions or purchases that you can no longer afford.
Yes, it would be a pain to file bankruptcy and give up the Clayton County home where you have settled and become comfortable. However, if you have a chance to extricate yourself from an environment where housing prices will likely be depressed, and a place where hard working middle class families will avoid, you should use the bankruptcy process to better yourself and your future.