What Michael Vick means to you and your finances

As published in the Lee's Summit Journal.

Given his recent run of success on the football field, there has been renewed discussion of Michael Vick, his prior actions, the value of second chances, redemption and What It All Means.

This article isn’t about any of those things. Instead, this is about one of the few things Mr. Vick and most of us have in common: money and debt (I am assuming very few of you reading this article have careers in professional sports, millions in assets, or federal felony convictions.)

Michael Vick is in the last year of his playing contract, but is only one year or so into a five year Chapter 11 Bankruptcy Reorganization Plan.

A Chapter 11 has the effect of grouping together creditors and treating them all in a similar manner, allowing for the debtor in the case to continue making income or doing business without lawsuits, garnishments or other collection activity. It is the type of bankruptcy that larger businesses use (think GM, Chrysler, pick an airline), as well as individuals with many assets and large debts (Mike Tyson, Vick). This plan requires him to pay some of his income into a “Liquidating Trust” that then pays out money to his creditors. In structure it is fundamentally similar to a Chapter 13 Bankruptcy, for which most consumer debtors (people like you and me) would be eligible.

In a Chapter 13 Bankruptcy, a person (or couple) makes payments to a Chapter 13 Trustee, and the money is then paid out to their creditors according to the terms of the bankruptcy plan. If the debtor’s income changes, whether an increase or decrease, the terms of repayment may also have to change – if you make more, you pay more to your creditors; if you make less, you pay less (within certain limits).

I was curious what provisions Mr. Vick’s plan made for his future contracts, and how, if at all, it would change based on what he made. It turns out his plan is well thought out on this front (those millions in legal fees haven’t gone to waste), and provides for an increasing percentage of income to be paid to creditors as his income increases (much like how your taxes are calculated), maxing out at 40 percent of all income over $10 million per year is to be paid until the end of 2014, or 100 percent of claims are paid.

There are some provisions to ensure extra income is paid if he hasn’t met 80 percent of the claims by 2014. Since Chapter 11 cases essentially end when the plan is confirmed by the court and not when payments are completed, it must include some provision to account for changes in income. By contrast, Chapter 13 cases don’t end until the last payment is made, and are thus reviewable by the court in the event of a change in circumstance.

In both cases, there is provision in place to adjust how creditors are treated in the event the financial situation changes for the individual. When dealing with your creditors (hopefully outside the confines of a bankruptcy), you need a plan that does the same.

First, you should have a plan in place to reduce or eliminate your consumer debts (credit cards, medical bills and the like), making sure the plan categorizes and prioritizes the debts (there are many methods, like Dave Ramsey’s or Suze Orman’s.) Second, you need to be willing to reexamine the plan when your situation changes, perhaps after your annual pay review, or in the event of a child being born or going to college, making changes to account for your current economic reality. Finally, and most importantly, you need to have the will to stick to the plan, even when it ceases to be fun.

It took a felony conviction, complete public disgrace, and a Chapter 11 bankruptcy to get Michael Vick on sound financial footing with a plan for recovery.

If you start with a plan to manage and eliminate debt, you can hopefully avoid a similar financial fate. Feel free to skip the felony and disgrace parts as well.

Who Really Holds My Mortgage?

Reprinted from the Lee's Summit Journal.

The news has been filled recently with tales of fraudulently foreclosed homes and the stories only get worse and more regular every week.

Even if you are completely current on your home mortgage payment, the events behind these wrongful foreclosures can affect you and your rights.

The problem stems primarily from two sources: mortgage backed securities and mortgage electronic registration systems. Mortgage backed securities are, essentially, a group of mortgages that are wrapped up together, turned into a trust or other “asset,” and then divided into shares which are sold on the open market.

These securities are then transferred repeatedly, as securities are meant to be. Since the original notes and mortgages were sold away from the primary lender, cash was freed up to make more home loans, which is good for consumers.

This led, of course, to such lowered standards for lending and inflated prices for houses that we had the recent real estate market crash of which we have yet to find the bottom, which is bad for everybody. So mortgage backed securities were the pumps that inflated the real estate bubble, especially in the absence of any useful regulation.

With all those mortgages packaged, sold and split into shares, some new problems were created, the first of which was figuring out who would take care of the mortgage.

Traditionally, if a mortgage was sold from one lender to another party, the transfer had to be recorded with the local recorder of deeds, like here in Jackson County. That way, anybody who was interested in the property could easily find out who to contact when it came time to buy or otherwise give required notice. Once the mortgage was packed in an MBS, however, the party to whom you sent payments was not necessarily the party who held the note or mortgage. This creates not only a problem for the homeowner, but also for the lenders. Enter MERS.

MERS is, well, an electronic registration system for mortgages. Upon creation of a mortgage, or deed of trust as used in Missouri, a notice to MERS was inserted in the note and mortgage and a registration number was assigned to the instruments. Then as the mortgage was transferred repeatedly, the changes were recorded in a central database. When it came time to foreclose or release a lien, MERS could be accessed to find the appropriate holder of the note and mortgage. It is estimated that some 60 percent of current mortgages are in the MERS system and the concept is pretty slick.

The problem is that MERS, as executed, doesn’t really comply with most states’ laws on recording of real estate transfers. It often splits the holder of the note (the promise to pay) and the mortgage (the lien on real estate), which can render the mortgage unenforceable (under some states laws).

It is a “black box” and it is not clear to the consumer that they are sending their payments to the right party. Records are not kept well, if at all and if the loan servicer (the company collecting the checks) determines that you are in default, your house could be foreclosed on by a party who isn’t legally tied to the house. Add a heaping of fraudulent intent and you have today’s mortgage morass.

Compounding this is Missouri law. In Missouri, the vast majority of liens are in the form of a deed of trust, instead of a mortgage. The main difference is the method of foreclosing.

Instead of filing a suit for foreclosure, under a deed of trust, once default has been declared and an opportunity for curing the default has run, the trustee has only to publicize a notice of foreclosure for 20 days before holding the sale. This sharply limits the consumer’s ability to fight the foreclosure if it is wrongful, whether because the loan is current or the trustee is the wrong party to do the foreclosure. The homeowner has to start a legal action, which is expensive and puts the burden of proof on them, not the mortgage company.

If you find yourself on the wrong end of a foreclosure action and you believe it is not legitimate, you need to contact an attorney immediately. You don’t have much time and you must act to protect your rights.

What do You Really Want From Your Lawyer?

As posted in the Lee's Summit Journal.

“So what should I do?” “Should I leave that to my niece or my church?” “What would be better, a Chapter 7 or a Chapter 13?”

These are some of the most difficult and uncomfortable questions an attorney gets asked on a regular basis, as well as among the questions an attorney is least qualified to answer. We don’t like those questions because we don’t know the answer (lawyers hate not knowing the answer). We don’t know what you should do, nor should we. The only person that can answer those questions is you.

To understand why, it is critical to understand who the “boss” is in an attorney-client relationship – you, the client.

Attorneys are experts. We have a specialized field of knowledge. We know the ins and outs of courtrooms, negotiations and legal documents. Attorneys are not, however, inside your brain and heart and soul. We don’t know you like you do. We can be there to help you make the right decision for yourself, but only you can make that decision. The core questions, the hard choices, the most fundamental decisions at the basis of any legal representation? Those must be made by the client and only the client.

Attorneys are able to, when acting at their best, distill out your options for action and the potential consequences of those actions. Understanding this and using it to your advantage will give you not only the maximum number of options and the clearest view of the road ahead, but will also save you time and money, getting you the most legal bang for your buck. Your attorney cannot do it alone, however. Helping your attorney requires you to be prepared:

n Know what you want to achieve. Having a clear and realistic sense of your goals in any matter will help your attorney in devising your best path. If I know what you want to gain, I can advise you on the best or worst path to gain it. Conversely, if your goals are unrealistic given the situation, I have a duty to tell you that as well.

n Be honest with yourself, and your lawyer. If you really want to make sure you stick it to the company that injured you or you absolutely want to make sure to protect your house in a bankruptcy, you need to tell me that so that I can work with that goal in mind, or at the very least let you know what the costs of reaching that goal may be.

Some questions I will ask you will touch on deeply held beliefs about life and death. Answering those questions honestly is imperative if you expect a to sign living will that respects your wishes and beliefs. n If the lawyer gives you “homework,” thoroughly complete it and turn it in on time. Having a complete set of answers and documents to work from will shorten the time it takes to move your matter to completion, which will not only save you money but time and aggravation as well.

While we are best suited to help you with the informed part of your informed decisions, this does not mean attorneys are without opinions, or are unwilling to share them - all too often we are eager to share what we think.

But my job is to be an objective and zealous representative of your interests and my view of your interests will color my opinions. If I know your interests and priorities, then I can give you a much better and more tailored opinion, with balance from an outside set of eyes.

This approach will help you in your dealings with all sorts of professionals, not just attorneys. Your relationships with tax professionals, financial advisors, doctors and architects, to name a few, will be enhanced if you understand that you are the core and key decision maker, the boss in the relationship.

Know who you are and what you really want. Follow that advice and you will be more likely to be the happy client of an attorney.

What does the Texas Rangers filing bankruptcy mean to me?

Yesterday, the Texas Rangers Baseball Club filed for Chapter 11 bankruptcy protection. This was a "prepackaged" bankruptcy filing, designed to ease the sale of the club to its new prospective owners, led by Hall of Famer (and current Rangers Club President) Nolan Ryan, for $575 million.

As my website makes clear, my practice is almost solely devoted to bankruptcy representation for consumers and small businesses. The odds of Jason Norbury being counsel for a $525 million Chapter 11 case are so small as to be zero. So why would I use up valuable blog space talking about a case that bears no resemblance to what I do, or what you, the reader would likely encounter?

One, I am a baseball fan and I find the intersection of work and play entertaining. But secondly, to discuss the concept of "prepackaged" bankruptcies. You may recall that GM filed such a case in the last couple of years. The idea behind the prepackaging is that you get enough creditors to sign off on what you are doing (the bankruptcy plan) that it will get approved by the court in as short a time as possible.

In many respects, this is not all that different from what a Chapter 13 bankruptcy does for consumers. Most of the time, we file a Chapter 13 case knowing what the available rules are, and how they require the treatment of your creditors. This avoids messy and expensive litigation and hearings, and streamlines the process to allow regular folk to keep their home out of foreclosure, cure tax delinquencies, and make a "fair" payment to their unsecured creditors.

So while the term "prepackaged" may drag up images of collusion and smoke-filled back room deals, it usually is merely designed to expedite the transition of the company into its new form, and keep the wheels of the business turning. The rules of a Chapter 13 do much the same for most people.

And finally, this document should make you feel better about yourself, because you don't have to pay Alex Rodriguez $26 million to hit home runs for the Yankees.

My Small Business is in Trouble. Do I Need a Chapter 11?

This economy has been very rough on many people, but especially harsh on the small business owner. Small businesses don’t have access to the same tools available to larger businesses (access to credit, sale of stock or other security) to weather a stormy economy. Additionally, a small business may be reliant on one core line of business (construction of a certain type of building for which demand dries up) than a larger, more diverse business entity. So what can a small business owner do when the debts are deeper than the money to pay them? Unfortunately, the answers are somewhat limited and can be disappointing.

File a Chapter 11 Bankruptcy. This is the classic business bankruptcy, of which you have undoubtedly seen many examples in the news (pick an airline, the Phoenix Coyotes hockey club, GM and Chrysler to name a few). In this scenario, the business uses the bankruptcy court to help effect a reorganization of the debts of a company, often eliminating a large portion of amounts owed to vendors, and restructuring secured loans (mortgages on land, e.g.) to make for a more affordable debt load. Indeed, the last few years have seen a significant increase in the number of small business Chapter 11 filings. However, a Chapter 11 remains out of reach for most small businesses for a number of reasons:

• Cost of filing. Attorneys for a Chapter 11 are very expensive, often with fees in excess of $50,000. Many small businesses simply cannot afford that kind of outlay for legal representation.
• One large creditor. If most of the debt of a business is owed to one creditor, that creditor essentially has the power to scuttle any plan they don’t agree with.
• The business is no longer viable. It is often hard to admit, but sometimes the business has simply run its course, and needs to end, not restructure.
• Difficulty in obtaining ongoing financing. The credit squeeze has not only affected existing loans, but sharply limited the availability of new financing, especially for distressed businesses.

Informally restructure debts. In the instance of significant debt owed to one or a few creditors, it may be possible, if the creditor is willing, to restructure the debts sufficiently to allow for continued operation. This may require forming a new business entity to continue operations, or some additional personal risk for the owners of the small business. Absolutely consult with legal counsel before attempting this option.

Dissolve the business. Each state has a procedure for the orderly ending of business operations and paying creditors. Following these procedures will keep the officers, directors and shareholders of a business insulated from liability for the debts of the company (barring any personal guaranties or fraud). This has been done for many years, and is the method by which most businesses end. Your business attorney can help lead you through the needed steps.

File a business Chapter 7. Most of the time, it is neither necessary nor desirable to use a Chapter 7 to end a business. The state dissolution procedure is the preferred method. But there are circumstances when it is best to turn the liquidation of business assets to an independent third party (the Bankruptcy Trustee). If there are disputes over what property is secured by a given lender, and in what order they will be entitled to receive sale proceeds, then a Chapter 7 may be beneficial. But most businesses should not be in a Chapter 7, for they have no assets to distribute to unsecured creditors.

Generally I find that when a business owner refers to a “business bankruptcy,” they are referring to taking care of the personal obligations of the business, not the business obligations proper. In this case, they may be suited for a personal bankruptcy, but one that is primarily business-related debt. The distinction is fine, but important.

Remember, entrepreneurialism and the failure of businesses is the American economic way. Bankruptcy and dissolution are the methods that back stop our system, ensuring that the next great business idea can be developed without ruining the lives of the people behind the businesses.

Don't Be Like Lenny; or How to Behave During Your Bankruptcy

This post is inspired by the ongoing bankruptcy of Lenny Dykstra. Mr. Dykstra was at one time a very famous baseball player, and at a later time an apparently successful businessman with a line of car washes. As has been the case with many businesses (and former athletes), the success was built on poor fundamentals, and when the economy went south, so went Mr. Dykstra's business and financial situations.

"Nails'" story really isn't all that different from many of the people I see in my office everyday, save that he was playing with bigger numbers when it all came crashing down. The real estate and construction markets are nearly vaporized, and lots of hard-working people and families have been affected adversely.

What separates Dykstra's case from others in a more important sense is his behavior during the case. Mr. Dykstra has repeatedly sold property without court approval, ruined property (letting his dogs mess all over a house that was to be sold), and otherwise worked to the opposite ends than the bankruptcy court desires. As such, the judge has taken over his case, and Mr. Dykstra has been reduced to making half-baked claims about his superior will being critical to the success of his case. Needless to say, his case is not going well.

Every one of my clients come to me from a different place. The events that led to their arrival in my office are as varied as they come: job loss, medical expenses, divorce, failed business, stupid in college. But all of them have a desire to re-grasp control of their financial selves, and bankruptcy is a tool they can use to help regain that control.

But you have to want it, and you have to admit you need the bankruptcy code as an ally to get you there. Being too proud and declaring that you don't need help while standing in front of the bankruptcy judge is not a successful combination. The "fault" behind your filing may not be your own, but humility in the face of the situation is a must.

Some of my clients attempt to beat themselves up for failing; I try to stop them. A chapter 7 case is not a time for recriminations, it is an opportunity to move forward again. To be successful, you do need to closely and critically examine the "whys," but not dwell on them.

Do you need to make changes after you file? I would bet the answer is yes. You could become an expert coupon clipper, change your eating habits from restaurant to kitchen, find a more fuel-efficient car, or even stop smoking to spend less. Obviously your relationship with credit will need to change - perhaps a program like Dave Ramsey will work for you.

But a bankruptcy filing is a moment in time, that you can use to greater good, or waste by crowing about yourself like Lenny Dykstra. Use the opportunity wisely.

(And it is never a good idea to make the judge mad at you. Never.)

The Importance of Planning Exemptions

When most of your clients are typical consumers needing to file bankruptcy, exemption planning isn't something you have to do very often. Most people don't own extravagant property, and certainly aren't part of the mythical set of folk who run out and buy a bunch of stuff in anticipation of bankruptcy. So even the modest exemptions provided by Missouri's Legislature are sufficient to protect the core stuff that people need from day to day. However, some situations do arise from time to time that require a more nuanced look at a person's property and how to exempt it before filing a bankruptcy.

Now, by "exemption planning," I mean taking the available property exemptions and applying them judiciously to my client's available property, thereby maximizing what they can keep after filing a Chapter 7, or minimizing what must be paid to unsecured creditors in a Chapter 13. I do not mean the large-scale transfer of assets to an exempt form on the eve of filing a case - that way lies litigation (as a judge once said "when a pig becomes a hog he gets slaughtered"). You can, in some circumstance (and depending on state law), transfer some assets from a non-exempt form into an exempt form, but care must be taken not to run afoul of the law and open yourself to expensive and risky adversary proceedings in the bankruptcy.

This process really calls for the skills and knowledge of an experienced attorney. Missouri alone has over 40 statutes that purport to exempt property. This doesn't mention the various federal exemption statutes that still apply, nor the mountains of case law devoted to interpreting the statutes. I don't pretend to know all of that, I merely know how to access the information, read it and form an opinion from which you can make a decision (all that bit cost me was three years of school, huge student loan debt, and 10 years of practice). It just isn't reasonable to expect a layperson to know how all that pieces together, and where the pitfalls lay.

Sometimes, a client cannot escape the fact that he or she will have to relinquish some property to the bankruptcy; it can be a tax refund, a car, artwork, season tickets to the local sporting franchise, or a piece of real property (even your home, in some instances). That is the trade-off for filing a Chapter 7 - you give up some property rights in exchange for protection from creditors and a discharge of debt. I have cases where a $1,500 tax refund was surrendered, but $150,000 of debt was discharged. My client complained, but if you could get your credit cards to settle for 1% of what you owed them, you would jump on that in a second.

Losing property in a bankruptcy isn't a failure. Losing property unexpectedly in a bankruptcy is. With proper planning, you can know what is coming, prepare for the eventuality, and even minimize the impact of property loss.

I Know Students Loans Don't Discharge, So I Don't Have to List Them, Right?

Um, not so much. Section 521 of the bankruptcy code requires a debtor to list all of their debts in their bankruptcy schedules. It doesn't matter what you intend to do with the debt, or if the debt wouldn't discharge anyway. The debt must be listed, so notice can be given to the creditor.

Okay, so you have to list the student loan in your bankruptcy schedules, and you know they will (with a few rare exceptions) survive your bankruptcy and be there at the end of your case. What can you do with them? The answer, as always in bankruptcy law, is it depends on what you are filing.

If you file a Chapter 7, there isn't much to do in the case of the student loans. The case will likely be over in a few months, and you will go back to doing what you were doing before the case started.

You aren't currently up-to-date on your student loan payments? Well, consider these options:

• Change your repayment option. The student loan programs have several ways to approach repaying your loans, including extended repayment periods up to 30 years, graduated repayment plans, income contingent repayment, or income based repayment. Contact your federal student loan program for more details.
• Consider a deferment. If you are going back to school, for instance, you may be eligible for a payment deferment. The requirement to make payments is temporarily stopped, but interest will likely still accrue on your loans.
• Forbearance. If you have a financial hardship (and a bankruptcy client may very well have one), you may be eligible for reduced or eliminated payments, but once again, some interest (on non-subsidized loans) may still accrue.
• Consolidation. If you have loans with several agencies, or simply several loans, you may be eligible for consolidation, which will give you only one payment per month, and may gain you a break on the interest rate. Not all loans are eligible to be consolidated, however, and you should carefully examine the terms of any proposed new loan.

If you file a Chapter 13, there are several options to consider. In some districts (including one of mine), there are explicit options in a Chapter 13 plan to allow a debtor to continue to pay the monthly payment and to help catch up on arrears on the loan. Sometimes, however, the requirements of the plan are such that it isn't possible to make both the plan payment and the loan payment each month. In that case, you may be able to simply treat the student loan like any other unsecured creditor (like a credit card), with the understanding that it will be there, with interest, at the end of the Chapter 13.

As always, talk to a qualified, licensed attorney before deciding on what is right for you. A student loan isn't going away, and you need to plan for it before you file a bankruptcy, so you can have it under control along with the remainder of your finances.

What will happen to my tax refund in bankrutpcy?

It's that time of year; W-2's are being mailed out, and people the nation over are rushing to their favored tax preparer (self, Internet, or brick-and-mortar) to have their taxes done in hopes of getting their tax refund and using the (interest-free loaned) money to catch up on bills, get that needed repair done to a car or house, or fund the family vacation.

But what if you have filed, or are considering filing, a bankruptcy?

Let's start with a few basic ideas. First, your right to receive an income tax refund is generally considered an asset of your bankruptcy estate, and is thus available to be taken by a Chapter 7 Trustee. In a Chapter 13 case, the courts consider a tax refund income, and thus it may need to be paid into your Chapter 13 plan, either in whole or in part.

DISCLAIMER: The preceding and following are general statements, and cannot be universally applied in all districts. I can only vouch for the Western District of Missouri and the District of Kansas (Kansas City Division), and I wouldn't even make blanket statements about those either. In other words, your mileage may vary.

So, Chicken Little, is the sky falling? Not necessarily. You may lose only some of the refund, or even get to keep it in whole. Let's begin with those who have already filed. In an existing Chapter 7 case (at least as it's done around here), how much of your refund the Trustee gets to take depends on when your case was filed, and what exemptions you may be able to apply to it. If your case was filed last year (2009 in this case), the percentage of the refund subject to the bankruptcy estate is the same percentage of 2009 that has passed. Thus a case filed 75% of the way through the year can claim 75% of the tax refund. If your case was filed this year before you received the refund, 100% is part of the estate. On top of that, if your state allows the use of a "wildcard" exemption, it can be applied to a tax refund, thus further reducing the amount that has to be turned over.

In an existing Chapter 13 case, I am afraid you will have to consult the local rule and practice. In my districts the rules have changed (evolved) over the years, and hopefully your attorney will know what is up. You may be allowed to keep a portion of the refund, or ask the court for permission to use it in specific ways. According to this, however, Chapter 13 Trustees wont be able to intercept your refund (insert much legal track-covering here, since I don't and you likely don't live in Michigan).

For those who haven't yet filed, my advice is fairly simple: Delay filing until you have received and spent the refund. How you spend the refund is somewhat limited, however. A couple of do's and dont's:

• Don't repay debts owed to family, or pay more than $600 to an unsecured creditor;
• Do use them on reasonable and necessary living expenses;
• Do track how you spend it, with receipts if possible;
• Don't "hide" it by shoving it into an IRA, another person's name, or a coffee can in the backyard; and
  
• Do consult with a licensed, experienced local bankruptcy attorney before spending the refund.

If you can't wait, then use this perspective: That refund is the payoff for all of your debts; that is a $2,000 tax refund pays off $35,000 in credit cards. Not such a bad deal, eh?

One more note - if you have a relatively steady income, you can plan your withholdings to approximately cover your expected tax liability. That way, you get the money each pay period, which I think most of us could use these days.

How does bankrutpcy affect my mortgage?

In the past two years, the value of residential real estate has dropped by an average of 30% or more nationwide. This leaves millions of homeowners with a house they owe more against than it is worth; they are "upside down" in the house. While the federal government has instituted some programs to help homeowners stay in their home and get their payments to what they can afford, sometimes it isn't enough to keep the house affordable. Can a bankruptcy help?

In general, unfortunately, a bankruptcy cannot help you change the terms of your first mortgage. The mortgage industry has a very powerful lobby, and has repeatedly defeated attempts to allow a bankruptcy to alter the terms of a mortgage. Every year, a congressperson proposes a bill that allows modifications in bankruptcy, and every year, it fails to make it out of the House of Representatives, let alone through the Senate.

All is not lost, however. Filing a bankruptcy can help you with your mortgage in several ways, and under certain circumstances:

• You can walk away from the home. Simply put, you can surrender the house to the mortgage company and leave it with no risk of a deficiency liability. This can be done in any chapter of bankruptcy. As a practical matter, it can be done outside of bankruptcy, and most mortgage companies will take the house and not pursue a deficiency. However, if you have a second mortgage, it may pursue a deficiency since it likely will get no money from a foreclosure sale. A bankruptcy will allow a free surrender no matter how many mortgages are on the house.
• If you have a second mortgage, a Chapter 13 bankruptcy may be able to get rid of it. If your home is worth less than what is owed on the first mortgage, it is possible to "strip the lien" of the second mortgage, turning it from a mortgage to a glorified credit card. This avenue requires some extra work by your attorney, and may necessitate a commercial appraisal of your home.
  
• The anti-modification provisions of the bankruptcy code do not apply to a mortgage that secures both the home and some other property. If your home loan is also secured by your car, personal items or another piece of real property, the lien can be "stripped" to the extent it is protected by home value. In this case, you can reduce the size of a second mortgage, and treat the rest like a credit card.

None of the above options is sufficient to keep most homeowners in their home if their mortgage is simply too expensive. For most people, walking away is really the only choice available to them. In my opinion, this is much worse than if a court is allowed to lower a mortgage's principal value to the market value of the house. Allowing that would keep more homes occupied, help adjust the real estate market, and in the end get mortgage companies more money. Until, however, the mortgage industry loosens its iron grip on Congress, that idea will remain the hope of attorneys like me.