Bankruptcy Alternatives / Debtor's Options

Real Property and Other Hard Assets FAQ

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Q. What might happen to my property?
A. This should be the most important question not only in understanding what options exist, but also for planning the outcome you desire. Choices available may include some of the following:
1. Keep the property.
2. Sell the property to a family member or friend.
3. Sell the property to a third party who may step forward to help you stay in the house.
4. Sell the property to an unknown arms length third party where you leave your home.
5. Give the property to the creditor.
6. Allow the property to sell at a foreclosure auction or sheriff's sale.

Q. Wouldn't I always want to keep my property?
A. No. You may find this a foreign concept at first, but a financial hardship requires that each asset be reviewed before an intelligent decision to keep it can be made.

Q. When should property be given up?
A. The most obvious case occurs with a negative asset - an asset which in reality is a liability.

Q. How can an asset become a liability?
A. Examples of potential negative assets include:
1. Properties where environmental cleanup costs exceed property value.
2. Properties where renovation costs of an uninhabitable building exceed potential value.
3. Unuseable buildings where demolition costs exceed raw land values.
4. Income properties which would operate with a negative cash flow before debt service.

Q. Does this only apply to real property?
A. No. Motor vehicles, machinery, equipment, chemicals and the list goes on, all potentially may become negative assets.

Q. I have determined my property does not fall into the negative asset catagory, what next?
A. Establish the value of the asset.

Q. What should I use for the basis of value? With a car, for example, would I use retail, wholesale, or trade?
A. When dealing with creditors use the value the creditor may ultimately be forced to accept. For an automobile we use wholesale because a creditor's most likely action will be to quickly liquidate it wholesale. Even if they choose to attempt to retail it, they will be prepared to only end up with the wholesale amount. To find the value of your car online go to Kelly Blue Book .

Q. How does that work for real property?
A. The appropriate number I call the "Distressed Sale" figure. This means an amount which might be bid by a third party arms length bidder at a foreclosure sale or by an investor on the open market within a short time frame.

Q. Where will I find this information?
A. Most experienced real estate brokers or appraisers in your area should be able to give you both a "market sale" estimate as well as the "distressed sale" figure. Ask for both. A broker might be your first step. Although they might not be as accurate as an appaiser they probably won't charge you for the evaluation.

Q. How about personal property like TVs, stereos, furniture or jewelry?
A. Imagine that you put it all on your front lawn for a tag sale. What would you expect to get? Or what would you get from a pawn broker?

Q. I know the value of my assets, what next?
A. Establish what secured liability corresponds to each asset. What mortgages, outstanding taxes or liens encumber the property? What loans remain unpaid on the vehicles? Did you buy jewelry or furniture through a finance company who has a secured position in the asset or did you run up credit card debt?

Q. If I bought something on a credit card will my balance be a secured liability?
A. In most cases items bought with credit cards will be unsecured and will not be included in establishing your equity in hard assets. Major purchases on Sears cards can be an exception to this rule. See Secured vs. Unsecured Creditors for more information.

Q. I now know the value of my assets and their corresponding secured debt. What's the next step?
A. Establish in which items you have equity. Equity exists when the value of the asset exeeds it's secured debt.

Q. I have some of each. Why does it matter if I have no equity in an asset?
A. One of the main reasons for going through a workout or bankruptcy will be obtaining a fresh start. Let's imagine that you bought a condominium as an investment. You thought that the rental would pay for the mortgage, condo expenses, repairs, leave you extra cash and build equity for retirement. For five years thats just what it did. Now the area has been over run with drug dealers and the condo has been without a tenant for two years. Prosects for improvement look nonexistent. Every month you pay the mortgage and condo fees. Your savings have been depleted and you now have trouble making the payments on your own house. You payed $60,000 for the unit putting $10,000 down and taking a mortgage for $50,000. The balance remaining has dropped to $45,000. A broker estimated market value at $30,000 and distressed sale value at $20,000. By doing a workout or bankruptcy this drain on your resources can be eliminated. A graphic analogy often used here is to "stop the bleeding".

Q. I'm lost, what could I do in a situation like this?
A. Many of the options I mention on the main page. Let's examine several using the condo example. Keeping the condo might be achieved with a debt workout to avoid foreclosure or filing a chapter 13 bankruptcy or by continuing to pay the debts in full. Doing nothing will ultimately bring a foreclosure.

Q. I've sunk almost $20,000 into this thing, so I keep it, right?
A. Wrong! Do not throw good money after bad. Imagine that you never owned the property in the first place, what would you pay for it today? If your answer was "You couldn't give it to me for free, I just don't want it.", than now is the time to let it go.

Q. I say $80,000. Keep it?
A. Given the example this option defies logic. Why would you ever pay $80,000 for something worth $30,000? You must not let past problems drag down your future, that's why you are here. If the distressed value was $80,000 or higher and your answer was $80,000 then keeping it becomes the easy answer.

Q. What makes that so clear if it is worth $80,000?
A. We now have an example of a hard asset with equity. Remember, equity exists when an asset's value exceeds it's secured debt. At an $80,000 sales price there will even be enough equity to cover transaction costs of the sale, which should be taken into consideration. If you decide you don't want the unit, you should still try to keep it long enough to attempt a sale and realize your equity.

Q. In the original example I have no equity, and I say it's worth $25,000. So?
A. Would you buy this unit today for $25,000 knowing everything you know about it?

Q. Yes, for $25,000 I would. Why even ask me, I owe $45,000?
A. First to establish a goal of where we want to end up. If your answer was that you really would keep an asset without equity(other then a negative asset) for any amount of money, even $1 then its worth exploring using a debt workout, or bankruptcy to keep it. The closer your number was to the true value of the property the more likely you actually can keep it. Using our example here $25,000 might result in your being able to own the unit for only $25,000 as this exceeds the distressed sale value. This exemplifies the one type of foreclosure workout.

Q. What if I said $5000?
A. Most times a number this far below even the distressed value of the property will indicate that exploring the best avenues to give up the property should be your focus.

Q. What are they?
A. In a debt workout there are many options including a short sale where you sell the property for less than the mortgage debt and deed in lieu of forclosure which allows you to simply give the property back to the creditor. In a bankruptcy you may abandon the property. In a chapter 7 bankruptcy or by doing nothing you may allow a forclosure.

Q. What about hard assets besides property?
A. You should go through this process for all hard assets, including all real property and motor vehicles you own.

Q. What about my house? Won't I always want to keep it?
A. Not always, but here lifestyle considerations come into play. Be sure to look at affordability too. Even if all of the value analysis indicates you should keep the home, you may not be able to afford to. To save your home from foreclosure there are many options, but sometimes even with reduced payments or a new mortgage you just can not stay there anymore.

Q. If I give up this house how will I ever get a mortgage on a new property or car now that my credit looks so bad?
A. You may need more money down and pay a higher interest rate but even those with very bad credit or bankruptcies on their credit report get home loans again in the future. My Alternative Mortgage Sources USA page lists companies around the country making home loans to people with flawed credit. You can even apply online right here.

Q. Do I have to give up my property if I file a bankruptcy.
A. No! Many times bankruptcies get filed to KEEP the property. Most often a Chapter 13 Bankruptcy would be filed to save the property from foreclosure. If you think that sounds like a solution for you read all of the chapter 13 bankruptcy FAQs.

Q. Is there a program where if your house is for sale you can suspend your mortgage payments prior to the sale of your house and can you do this only if a contract is pending or all the while your home is being listed as for sale?
A. While I sometimes see this situation, mostly on properties with serious other problems, don't expect such a plan. Most frequently if you list the property and stop making payments the bank with go forward with the foreclosure. If they get within a few days of the foreclosure auction and a firm signed contract with deposit can be confirmed with a closing date less than 30 days away, they will likely postpone the sale to allow the closing. I'm not saying you should not employ a plan to sale propery if that looks like your best choice, just do not think putting a property on the market will stop the foreclosure process.

Q. If I realize that no matter what I do losing the house will happen, it's only a matter of how and when. Or if I no longer want the house, should I file a bankruptcy of just let the foreclosure happen?
A. I would suggest you try a deed in lieu of foreclosure but for cases where time no longer remains for those options or attempts at those debt solutions failed, examine the rest of your debt and the potential mortgage deficiency to calculate the best choice from that point. For people in this specific position read my full article about foreclosure vs. bankruptcy for those cases where you know you must walk away from the home.

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Debt Workout Mortgages & Secured Debt | Credit Card & Unsecured Debt | Bankruptcy | Do Nothing | Deed in Lieu of Foreclosure | Do Nothing Home Forclosure | Pay Creditors in Full | Debt Consolidation Loan | Non-Profit Credit Counseling | Credit Card Balance Transfer

Debt Consolidation / Debt Settlement Program - Consolidate your credit card and unsecured personal debt with a program to settle balances for 30-50 cents on the dollar. Make monthly payments toward the total settlement over a period of years. Free initial consultation. Learn more and see if your situation fits the program online.

A Guide to Borrowing Money with Bad Credit - Including informational articles on obtaining a home mortgage, auto loan, credit card or unsecured personal loan.

Credit Card Debt - Online guidance to understand your debt and consumer spending habits in order to evaluate the credit card debt solutions and pick best debt relief for you. See 10 common causes of bankruptcy so you can avoid them.

Credit Cards For People With Bad Credit - Read either informational articles on obtaining any type of bank card or credit card with bad credit, including a definition of what is bad credit or look at a complete set of FAQs dealing secured credit cards.

Credit Repair and Credit Rebuilding -Credit repair and credit rebuilding article. Topics include how to repair your credit and warnings about credit repair scams. Links to other credit repair sites and professional credit repair services plus my own Free Guide to Help Repair and Rebuild your Credit Report. For more credit help try 14 Do's and Don'ts To Raise A Score Fast or the Credit Score FAQ.

Who to pay when you can't pay everyone - An article addressing cash allocation for debtors.

How to Get money when you need money - Examines WHEN you really NEED money and how to get money even with bad credit for an emegency or financial crisis.

Stop Home Foreclosure Help - Articles to better understand the foreclsoure process and how to avoid a foreclosure including an interactive tool to analyze your own situation and point you in the right direction to keep your home, a list of various ways to halt a foreclosure, a list of 10 mistakes to avoid when facing foreclosure and foreclosure myths.

Personal Home Budget Analysis - An interactive tool to learn where your money REALLY goes. Input your income and expenses, the program will automatically determine if you have accounted for all you have spent. When you have discovered all your expenses you will be know the details of any overspending. Use this information to help plan and keep a monthly budget or change spending to avoid further debt or bankruptcy.

Bankruptcy Questions - Find all the bankruptcy information you might be looking for about both chapter 7 bankruptcy and chapter 13 bankruptcy including chapter 7 vs chapter 13, what does a chapter 13 do, who should file a chapter 13, what happens after chapter 13 bankruptcy dismissal, how to find a bankruptcy attorney, hiring and working with your bankruptcy attorney, and much more.

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Nothing contained herein should be construed to constitute advice for your personal circumstances. This is intended as a peripheral exposure to the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws or their alternatives. Whether or not you should file a Chapter 7 bankruptcy, Chapter 13 bankruptcy, or any bankruptcy, will vary depending on your personal circumstances and should only be undertaken after careful consideration, analysis and after consultation with an attorney experienced with such matters. These pages may contain information and rules peculiar to the Commonwealth of Massachusetts.

This material may be considered advertising under the rules of the Supreme Judicial Court of Massachusetts.

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Financial Firebird Corporation, 150 North Street Suite 40, Pittsfield, Massachusetts 01201.

The most recent update of this page occurred on 11/02/10.

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