Yesterday, I met with a potential client who was facing immediate foreclosure (today) and I encouraged him not to file Chapter 13 to stop the foreclosure.
During the course of our discussion, I learned:
- that he had previously filed a pro se Chapter 13 earlier this year that was dismissed for non-payment
- because of a reduction in overtime hours, this potential client did not have sufficient income to pay his regular mortgage payment, much less contribute to a plan to cure his arrearage
- he had been in his house for less than a year and had no equity (and actually owed more than the property was worth when late fees and penalties were included)
- his real estate agent was pushing him to file the 13 because she had a potential buyer lined up
- he was very concerned that a foreclosure would cause damage to his credit
I expressed to this gentleman that, in my opinion, Chapter 13 was a waste of his money. Here is why:
- we could not propose a feasible plan since he did not have enough disposable income to pay his regular mortgage, much less contribute to a Chapter 13 plan
- his credit was most likely already badly damaged because of his first unsuccessful bankruptcy and his failure to pay his first or second mortgage for almost a year. A foreclosure would likely not cause significantly more damage
- if he was to stop the foreclosure for the purpose of selling the property, how would he close? The total debt on the property exceeded the sales price – he would walk out of closing owing $10,000 to $20,000
- deficiency judgments arising from foreclosures are rare in Georgia – should the mortgage lender pursue him, we could look at filing a Chapter 7 down the road
- given the current bias against 2nd filings, it is possible that the lender would foreclose in escrow then immediately petition the Bankruptcy Court for an Order validating the foreclosure
- because second cases require extra work – a Motion to Extend the Stay – I have to charge more up front. In this case, the potential debtor was basically telling me that he had no desire or intention to stay in this Chapter 13 for more than a month. As such, I would have to charge $2,500 up front + the filing fee.
- the primary practical problem that the potential client faced – he and his family would have to move fairly quickly
I expressed that in my view, it made little sense to spend thousands of dollars for the hope that he could stay in his house for a few weeks to months. Instead, use his cash reserves to move and find a place to live. I closed by saying that I would file a Chapter 13 for him if he insisted, but that in my view he was wasting his time and money.
Do you agree with my analysis?
[tags] Chapter 13, pending foreclosure, Georgia foreclosure, foreclosure Fulton County, stop foreclosure, bankruptcy, bankruptcy analysis, re-filed case, motion to extend stay [/tags]