Bankruptcy and Your Home: The Question Isn't "Can I Keep My Home?", It's "Should I Keep My Home?"

I have touched on the subject of homes in bankruptcy in a previous post.  It is a major concern of my clients when they are contemplating bankruptcy but, oftentimes, they may be asking the wrong question.  It is not unusual for distressed homeowners to seek bankruptcy protection, particularly, if they have been served with a complaint for foreclosure.  A bankruptcy filing will stop a foreclosure, but it's like sticking a finger into a hole in a dam. It's temporary, and eventually the flood waters will break the dam.  So, instead of asking, "Can they keep their home?", I may be asking the following:

-What brought the clients to the point of foreclosure?  (Illness, job loss, divorce, etc.)

-What is their current income, and do they have enough money to make the month-to-month payment, and pay for all other necessary expenses post-bankruptcy?

-How far behind are they on payments?

-Is the situation that brought them to foreclosure resolved?

-Is there any equity in the home?

I may have a number of other questions bu this is the starting point.  I recently encountered a lovely woman whose home was in foreclosure.  She was divorced but able to maintain her mortgage until she became ill.  Her disability is permanent and she is now on a limited income.  There is little chance that she will earn more in the future (barring a lottery win).  Her monthly mortgage payment represents more than half of her current income.  Technically, she can make the payment, but it leaves her with very little money to pay utilities, food, etc. The home has no equity.  So, what is the benefit of trying to "save" the home?  Even if she is able to make the month-to-month payment, what happens when there is a necessary repair to the property?  There is nowhere in her budget to pay for repairs.  She can't make the repairs without sacrificing some other necessity.  In my estimation the house is not worth saving.  It would continue to be a source of distress and deplete most of her resources and, eventually, it would end in foreclosure. 

This is not information clients want to hear, and I have often had consultations with clients who consulted with another attorney and then come to see me hoping to get a different answer.  I am not going to tell them that they have to give up their home.  However, I have to give both the benefits and pitfalls of trying to keep a distressed home.  Unfortunately, in these situations the scale is tipping heavily towards the pitfalls.