Real estate values will decrease again, if they haven’t started to decline again already. This is evidenced by a number of conversations we’ve had with asset protection clients of Lodmell & Lodmell recently. The purpose of this article is to help you make the right decision with respect to real estate as a part of your overall asset protection plan, especially properties that might be primed for a strategic default. Here’s what you need to know.
Bankruptcy Should Be Your Last Resort
Many mortgage “assistance” companies advise their customers to declare bankruptcy rather than pursuing a short-sale of financially troubled properties. The logic of their advice is simply that by filing bankruptcy and losing property through the bankruptcy process eliminates the possibility of a default judgment. Many bankruptcy attorneys offer similar advice, believing that the wiping out the possibility of a default judgment is most important.
The fact is that mortgage deficiency judgments, especially now, are uncommon at best. Several states do not allow deficiency judgments at all. Even in states where deficiency judgments are permitted, banks normally settle such claims for pennies on the dollar. But that still doesn’t eliminate the possibility of a deficiency judgment in some circumstances, so why should bankruptcy be the last resort?
For one, the exemptions available under state law are often much more beneficial to you than the exemptions available under the federal bankruptcy code. That means that even if you get sued for a deficiency judgment under state, there is a good chance that your assets will be better protected under state law than they would under the bankruptcy code. Of course, if you have an asset protection plan in place, most if not all of your assets can be protected.
When All Else Fails—Strategic Asset Protection Moves
The beauty of using bankruptcy as a last resort is that you never foreclose the possibility of declaring bankruptcy at some point in the future. You will, however, be stuck in the bankruptcy system once you file, so it makes sense to wait and (1) see if your lender will even pursue a deficiency, (2) negotiate the amount of any deficiency claim, and (3) determine what assets would be available to settle such a claim inside and outside of bankruptcy proceedings.
Your best bet is to wait on filing bankruptcy until your lender files suit against you, obtains a judgment, and seeks to garnish your wages or otherwise actually attempt to collect on the judgment. Otherwise, you will almost certainly be better served by not filing bankruptcy. If you have any questions about this topic or any other asset protection topic, please feel free to give us a call.
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