Is bankruptcy ever just a smart business decision?

[CaliforniaPl]

I now know that I purchased my first home at a very bad time at the end of '04. That is easy to say now, but of course I didn't know that at the time. I didn't know that within five years, the housing market would take a dump, the economy would take a dump, my employer of ten years would go out of business and I would be laid off. I didn't know that I would be living on unemployment insurance only while trying to find a job, which is 25% of what I was making when I was working.

When I paid $406k for my 1100 sq. ft. two-bedroom condo, that was the going price in this part of the San Francisco area I am in. I could have opted to move 100 or more miles away from work and gotten more house for less money, but I decided several hours commuting everyday just wasn't for me, so I got what I got.

I was fortunate to get a modification on my 1st mortgage a couple of years ago which brought the payments down to a manageable level and terms which I am happy with. I have since been trying to get a modification on the 2nd without any luck, so I stopped paying July '11. I just can't afford it, I'm hemorrhaging money and would soon be completely broke if something didn't change.

But being realistic, I will never make the amount of money I was making at my last employer. Straight time, I was making about $65k/yr. But with overtime and bonuses, I was well over $100k consistently every year. In this new economy, I'm thinking the most I'll be making going into it would be $50k/yr and possibly even less. Home costs for 1st and 2nd mortgages and bills around the house are about $2200/mo. Taking the 2nd mortgage out of the equation brings it down to about $1500/mo.

Currently I owe $325k on the 1st and about $75k on the 2nd. Home is worth between $260k-$270k based on recent sales in this complex. I had originally planned to be here a few years and then move on to something else. Thats not going to happen, so I'm planning to be here long term which I'm fine with.

Most likely, with my credit now screwed by not paying the 2nd and my savings slowly being depleted, I'm not going to be able to buy a home again for a good amount of time, so I'm better off fighting to keep the one I've got. Besides, I have to live somewhere. And unless I move into a tiny studio apartment or get a place with several roommates, I'm not going to pay much less rent in this area than I am paying on my 1st.

This 'perfect storm' of events all came together in a relatively short time to make things difficult to be able to pay both mortgages. I could turn the tide a bit and use the situation in my favor by getting rid of the 2nd. Its not what I wan't to do, but what is one of the few choices I think I have left in my efforts to keep my home. I'm not planning to file anytime soon, as I don't think the need is immediate. As of now, I'm just not paying the 2nd, waiting it out to see what BofA does, but at the same time, gathering information so that I am prepared in case I do need to file. So, with all that in mind, unless BofA decides to just go away or settle for pennies on the dollar, Chapter 13 is seeming like a good decision to allow me to keep my home. Yes, I am aware my credit will severely suffer, I'll have to give up my credit cards and rebuild my credit. But I'll have a home, a couple of cars that are paid off, and can live comfortably paying for things as I go and not charging up credit (which I haven't done anyway). Obviously, the only part of the equation missing is a job. But I am confident in myself that once I am done with school, I will be able to find a job, just not making what I was making.

[justbroke]

Bankruptcy is always a smart business decision. Just ask Donald Trump, Henry Ford, and even Walter E. Disney. (Oops, you can't ask the last two, but you get my point.) The real key is how and when you apply it, and which Chapter of bankruptcy are you using. (Are you filing for straight liquidation -- Chapter 7 -- or reorganization -- Chapter 11, 12 and 13?) Timing is everything!

Bankruptcy is such a tool for businesses, that truly "orchestrated" and engineered bankruptcies of major companies, usually last a few weeks! (Think of GM emerging from Chapter 11 in just 40 days!) So, as a tool, it can be very powerful in the right hands. In the wrong hands, it can be disastrous!

[CaliforniaPl]

Actually I don't even want to think of GM and their bankruptcy as that is the main reason I am out of a job. I used to work for one of their suppliers that was forced to shut down due to their bankruptcy.....

But that is actually what I am thinking of it as. Instead of just giving up my home or continuing to throw money at BofA that I don't have, play my cards right, learn as much as I can about bankruptcy, and unless something very unexpected comes through, like BofA offering to settle the 2nd for pennies on the dollar (I'm thinking 5%-10% at the MOST), use this situation of my income being cut by 75%, being laid off, and my home's value dropping by 35% to my advantage and strip the 2nd. Granted, its not what I want to do and it wasn't my first choice, it is, in fact, one of my last choices. I guess the thing I'm thinking about the most is how much dragging around that bankruptcy ball and chain is going to affect me, especially since I'll probably very soon be in and out of jobs until I find something suitable.

[jst4f]

Sounds like you have time to plan, so go find a couple of lawyers and debt councilors and see what is best for you when all the facts are on the table. They usually provide a free assessment of your situation. By all means keep surfing this website and asking questions. As to your question on whether BK is a business decision, my answer is absolutely yes it is a business decision. The banks will look at your possible foreclosure as a business decision. The hardship letter is just a formality (or a barrier). The cc companies will sue you as a business decission. The all serve their investors and will decide what to do based on what they believe will make them the most money. You should do the same. If you won't look out for your interests, who will? Best of luck on finding a job and the best recovery program for you.