Seymour's Blog

"Client Who Never Liked Bankruptcy, Now Loves Bankruptcy"

Just this past week, I met with a client who is in the construction business. In the good times, he was making $25,000 a month easily. Well, needless to say, these are not good times to be in the construction industry. He is now making substantially less money.

On the other hand, he now has substantially more debt than he did before. He bought a home worth more than one million dollars. He bought a second home as an investment property that is now under water. His mother’s home is also under water.

During our initial meeting, he told me how he was always against bankruptcy and didn’t think it was a good thing to do.

After having met with me for about an hour, he decided that bankruptcy was a great thing for him to do.

Why the sudden turnaround in attitude? Well, he realized that with the amount of debt he had accumulated and the amount of money he was making right now, he was in serious financial trouble, and he realistically couldn’t figure out a way to pay all of his bills. He has incurred about $100,000 of credit card debt, and the credit card companies are not willing to work with him.

When he learned he could wipe out all of his $100,000 in credit card debt by filing Chapter 7 for $996, he was certainly more than just mildly interested.

Things got even better as our conversation progressed. I learned that his home was only now worth about $600,000 compared to the purchase price of more than $1,000,000. I further learned that he owes a second mortgage of about $170,000.

In talking to him, I realized that with a Chapter 13 bankruptcy, he would be able to totally wipe out his second mortgage and save $170,000. Why could he do this? Because under the bankruptcy law, if your property is worth more than the payoff on your first mortgage, you can wipe out your second mortgage and treat it as unsecured. Since you don’t pay your unsecured creditors anything, your second mortgage gets completely wiped out.

He is going to save more than $170,000 on that second mortgage. The reason is that he would be paying that mortgage off for another twenty five years or so, and based on his interest rate, he is going to be saving more than $200,000 just in interest. So in reality, he will be saving about $370,000 by filing a Chapter 13 and wiping out that second mortgage.

The same legal principles apply to his mother’s home. She also has a second mortgage on her home, and that second mortgage can be totally wiped out by her filing a Chapter 13, because her home is worth less than the payoff on her first mortgage.

My client now realizes that the purpose of bankruptcy is to give you a fresh start, wipe the slate clean as much as legally possible, and give  you the opportunity to start saving again for the future, while looking forward to a much brighter financial future for himself, his mother, and his family.

My client is now happy that Chapter 7 and Chapter 13 exist. He has learned how to take full advantage of all of the legal benefits. He realizes that the law is there for a reason, and that there is no shame or stigma involved in using the law for your advantage. That is why the government passed bankruptcy laws more than 200 years ago.

My client is doing what millions and millions of people have done before him. I expect that about two million people will file bankruptcy in the year 2010, and those people will all be entitled to start with a clean slate, wiping out their unsecured debts, and based on their having a happy bankruptcy, they will probably be recommending filing bankruptcy to other friends and relatives that are in financial difficulty.

Therefore, no matter what your opinion might be right now about bankruptcy, if you are in a lot of legal debt, I would respectfully suggest that you talk to a knowledgeable attorney who can give you realistic options. That is what it is all about- coming up with options and solutions, so that you can make the best possible decision as to how to handle your heavy load of financial stress and pressure.

Feel free to call us with any questions. We like to help people wipe out their bills and get a fresh start. We believe that all people should be educated as to how powerful the bankruptcy laws are in protecting honest people who have gotten into financial difficulty.

We wish you the best, and look forward to hearing from you if you have any questions.