Suite 2800, Gulf Tower
Pittsburgh, PA 15219
412-391-8000
1-800-360-9392
The Lay-off or Job Loss
Mike and Sally considered a Chapter 7 in 2002. Both of them had been employed locally and were earning good money, plus full benefits including pension plan, medical benefits, paid vacation, and paid sick days. While they had been employed, their combined net income per month was in excess of $4,000 and they had two mortgages on their home, plus two car loans, a loan for new furniture that had been purchased for the living room, and bedroom, numerous charge cards, personal loans, and of course, the usual food and utility bills. With incomes as large as Mike and Sally, and the expectation that they would be continuing to work for the rest of their lives, they saw no problem with paying their debts and buying particularly anything they desired.
But like so many over the last several years, they were laid off. Unfortunately, their unemployment compensation tallied only a combined $2,500 per month, a significant drop of more than 50 percent. Thus, they were unable to make their necessary car payments. They also fell behind on the second mortgage loan and could not make their scheduled charge card payments. They had two children, who were both teenagers and who also required clothing and other continuous expenditures of money.
By the time they chose to file, they had been laid off for approximately six months and were facing the repossession of both their vehicles, their furniture, and were under extreme pressure by harassing creditors threatening lawsuits and foreclosures. Their main concern at the time of their filing, was their sanity and piece of mind.
By filing a Chapter 7, they were immediately able to eliminate their credit card and personal loan debts. Then they voluntarily returned both vehicles to the lenders and purchased an old car. If they had allowed the situation to go to a Sheriff's Sale, there would have been a public auction of their house at the Courthouse the following month. People could have come and bid on their house, but that was very unlikely because at a Sheriff's Sale, the perspective bidder must bid more than the amount that is owed on the outstanding mortgage balance and must be prepared to pay that amount in full, within five days in order to purchase the property. What normally happens at a Sheriff's Sale is that the property is deeded by the Sheriff back to the mortgage company, and then they evict the homeowners and sell the property for as much as they can get.
If there is a deficiency balance remaining because the house is sold for less than the amount that the homeowner owed to the mortgage company, the creditor can then obtain a deficiency judgment for that amount and proceed to seize the former homeowners furniture, automobiles, bank accounts, or any other assets. Fortunately, since the resale of used furniture makes the repossession of such a losing proposition for the creditor, Mike and Sally were able to work out an arrangement with the finance company for a refinancing of their loan at 50 cents on the dollar, not to mention the extensive legal costs associated with such a repossession. On the status of their house, the first mortgage had remained current, and they were able to make arrangements with the second mortgage company to make lower payment arrangements with the second mortgage company to stave off any type of foreclosure.
Sometimes, however, it makes sense for the clients to give up their house and look for something less expensive. We'll discuss both options with you.
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