Bankruptcy clients often seek a bankruptcy lawyer as the road to keeping a house that’s in foreclosure. They are often not sure just how bankruptcy will accomplish this, but they are resolute that keeping the house is the centerpiece of their bankruptcy.
A capable lawyer can tell the client how that might be done through bankruptcy; a standout bankruptcy lawyer challenges the premise altogether. Often these days, that desire is irrational and uneconomic.
I start by walking the client through the analysis of the mortgage payment compared to the cost of renting. The difference between the two is the investment aspect of home ownership: you are paying more than just the price of housing in the expectation of owning something with value.
Then, we look at the difference between the current value of the house and the total mortgage debt. The mortgage debt includes the arrearages. The further underwater the house is, presumably the longer the client will have to pay that “investment premium” before his investment is worth what is owed.
Finally, I ask the client about what he has saved for retirement. The smaller the savings and the older the client, the stronger the case that the “investment premium” in the current mortgage payment is better spent in diversified investment in something other than real estate.
The challenge of being a consumer bankruptcy lawyer is that this analysis may be strikingly different for each client and doesn’t always lead to the same conclusion. But it is a conversation you need to have with the client.