This was an unusual day. I got to speak with clients that had:
A home worth $500,000.00 with no mortgage, and;
A client who had a $300,000 home with a large mortgage but also a piece of land worth $100,000.00 with no mortgage. Both clients had a lot of debt and wanted to keep everything.
We Need a Plan
Sometimes you can keep everything, even when you own this much property, as long as we prepare a plan to deal with the debt over the next five or six years. But sometimes the income just isn’t there to do this. So what happens next?
In the first example, the client has virtually no income whatsoever and the house is being sold in a real estate tax sale. With no income, and with tens of thousands of dollars in real estate taxes owed, what are the choices? We have to stop the tax sale and filing for any kind of bankruptcy does this. Next, we need to assess the client’s ability to pay the real estate taxes and other debt over the next five to six years. Seeing no ability to do so, the client can consider selling the house in a bankruptcy reorganization. He will have time to do so, generally six months to a year.
He could have done this without the bankruptcy, but he didn’t do it, and the Sheriff’s Sale was staring him down. What would be better: have someone buy his house at a bargain price at the Sheriff’s Sale, or for the client to take control of his own situation by filing the bankruptcy and listing the house as he would normally do? I expect the client to do the reorganization, sell the house, pay off his debts, and pocket the rest of the money. This is money he may have lost if he had let the house be sold to the high bidder at the Sheriff’s Sale.
Making Tough Choices During Bankruptcy
In the second example, the client is not facing a crisis now, but will be facing in December when she will begin making large payments on student loans. She does not have the income to do that, so I advised her to sell the acreage. She doesn’t want to, as it is family property but, if she gets sued by one of the creditors that she cannot pay, and they win, the creditors have a lien on this property and they can sell it for whatever they need.
My advice to the client is to sell it herself before she gets forced to do so, as she can probably get a much better price for it than the creditor.
These are not common cases. Most of our clients do not have property worth this much money, and most have encumbrances on their property. That is why our clients will not lose their houses unless they choose to do so or if we tell them before they file any papers of a risk. The bankruptcy laws are fair and protect a lot of things — just don’t expect them to protect massive amounts of free-and-clear property.