If a debtor does not know the true value of his home, he may find himself in an asset case under chapter 7 bankruptcy. This was almost the case for a recent client who was seeking a fresh start under Chapter 7 bankruptcy law. The debtor purchased his home slightly over three years ago for $92,000. When he came into my office and completed an in-take questionnaire, he valued the home at $94,000. If I were to accept his figure, he would’ve found himself in an asset case with approximately $18,000 of unexempt real estate. This would’ve been an unnecessary tragedy for both the debtor and the law firm. After all, my goal is to help debtors get out of debt while maintaining ownership of their real and personal property free and clear from the long arm of the trustee. Luckily, I caught the error of the debtor and made a pivot in the type of bankruptcy that was ultimately filed.
Check The Value
One of the best ways to prevent errors is to verify the information which the debtor provides to the firm. We simply don’t accept the real estate value that the debtor puts on paper. In this particular case, I simply went to the website zillow.com. By doing a very quick search, I was able to determine that the majority of the homes not only on the debtor’s block but in the entire neighborhood were selling for approximately $155,000. There were numerous deviations to the higher and only a handful of slight deviations to the lower. I realized right away that even if I had a licensed appraiser view the property, the trustee would never accept that recommendation without doing his own due diligence. The houses in the neighborhood were simply too valuable for the debtor to make a claim that his house was only worth $94,000. For this reason, I had the debtor come back into the office and we talked about chapter 13.
Chapter 13 Protection
Under Chapter 13, the debtor would be able to maintain ownership of the property without fear of losing it to a trustee. The debtor would be able to pay back all of his creditors over 60 months at a term of approximately $350 per month. I also advised the debtor that many of his small, unsecured, miscellaneous creditors would not file a timely proof of claim. Thus, his 100% repayment plan would likely end well before the 60 month maximum term. He also was pleased that the attorney’s fees for a chapter 13 case could be provided for within the plan. Thus, he no longer had to make payments toward his chapter 7 filing, but rather, would pay the rest of his attorney’s fees as part of his chapter 13 plan payment.
Choice Of Attorney
The important thing to note is that the attorney you choose for bankruptcy is a critical choice. It is not one that you should make simply based upon a low advertised price. You should also not choose a law firm based upon a lawyer who advertises on TV, unless that attorney is actually going to handle or personally oversee your case. The wrong attorney could lead to devastating results. In the example cited above, if a lawyer does not do his due diligence and verify the value of the debtor’s property, then the debtor is likely going to lose the property. In some cases, a debtor can buy out the trustee’s interest in the bankruptcy estate. However, there must be a source of funds from which to buy out the trustee’s interest. In this particular case, there were no such funds. The debtor would have clearly lost the house.
Increasing Home Values
Lastly, please keep in mind that real estate values are increasing. The number of homes falling into foreclosure is decreasing. The number of properties that are being administered by trustees is increasing. This is due in part to the rising value of real estate as well as the circumstance of cases being filed with the mistaken belief that property was protectable. Before you file a Chapter 7 bankruptcy case in which you own a home or an interest in a home, make certain that you know the value of the home and that you provide that detailed information to your attorney. If you do so, your attorney will be able to file the proper chapter of bankruptcy for your particular circumstance.
