As our children bounced and giggled wildly in the bouncer and splashed in kiddie pools, I had the chance to catch up with some of my neighborhood friends at birthday parties this past weekend. I couldn't help but notice that everyone seemed genuinely relaxed and happy for the first time in several months. Really, it's been since the recession hit. What had caused this turnaround?
I soon learned that most of the families there had been trying to save their homes by negotiating with their lender (we all bought when the real estate bubble was quite large) only to learn that if they were carrying too much unsecured (mostly credit card) debt they couldn't qualify for a modification. That's when bankruptcy factored into the equation.
Call me naive, but when I thought about bankruptcy, visual images of my furniture being carried away to the auction swam through my head. My children being scarred for life as their favorite toys were packed up and carted away.
As it turns out, this is not the case at all. In fact, in the state of California, you're allowed a "wild card" exemption in Chapter 7 filings, so you can keep up to $70,000. of assets, like a bank account, car, or any combination of things. For most of us, our homes are worth far less than we owe: for example, one friend's home is worth $300K, but they owe $510K. Another friend's home is worth 70K, but they owe 300K. If you're under water or upside down, as many of us are, you can definitely keep your home -- if you want. And even if you have equity in your home, depending on how much it is, you may still be able to keep it. I personally do not know anyone who has equity at this time. You also have the option of giving it back to your lender. What I found most refreshing to learn was that the bankruptcy laws are actually there to protect the consumer. It is surprisingly fair.
Some of the families we know had taken on a rather traditional set up, in which the dad works while mom, even though educated and capable of working, stays home with the children. And often times it was the mom who was the wage earner, while the dad took care of the kids. It is more affordable than child care, and more desirable. But lately, the earners hadn't been present at home for dinner, breakfast, or weekends as they took on extra jobs to sustain all of their debt while trying to hang on to their home as their mortgage adjusted. "We just don't see Jon that much," one friend had told me sadly not too long ago.
But as bankruptcies are being filed, one by one, earners are returning to their families. "It was like I was already in debtors' prison," one friend of mine told me. "Because all I did was work to keep up on the minimum payments due. I had zero time with my family. I was an involuntary workaholic." These hard workers only considered the bankruptcy option when they were working every job possible, and still not keeping up. Something had to give if they were going to continue eating.
When I think of the stress and fighting that often develop out of money troubles, I can't help but wonder what might have become of the lovely marriages and families that I know had bankruptcy not relieved such a heavy burden. Their destines have been forever altered thanks to this set of laws. Staying in their homes, and now finally able to have dinner and weekends with their families, balance is returning. And love, togetherness, joy, quality of life. And I never thought I'd say this, but ... thanks to bankruptcy laws.
To learn more about the bankruptcy laws in your state, check this out: