Bankruptcy Tutor
By JERRY GLEESON
THE JOURNAL NEWS
(Original publication: October 6, 2004)
In Westchester and Rockland counties, where median house prices have doubled over the past seven years, a growing number of homeowners are seeking a special form of bankruptcy protection to secure their property when they fall on hard times.
The White Plains office of U.S. Bankruptcy Court reports that the number of Chapter 13 cases in the two counties has risen by nearly a third since 2001. In the first eight months of this year, 331 cases were on the books, up 32.4 percent from the same period three years earlier.
Unlike other bankruptcy chapters, 13 allows the property owner to protect his assets from being sold by a trustee to repay debts. There are significant prerequisites. Among other requirements, the property owner must have a steady income, either from a job or other resources. The repayment plan cannot take longer than five years.
Those are tall orders, and most Chapter 13 reorganizations fail. Jeffrey Sapir, a Westchester bankruptcy trustee, said that several years ago about 85 percent of the plans were dismissed, although today the number is closer to about 65 percent.
The runup in housing values in the northern suburbs may play a part in that trend. With houses worth sharply more, homeowners have more equity in their property that they can tap to pay off bills. Some refinance in order to do so, taking advantage of adjustable-rate mortgages with introductory rates currently running less than 4 percent.
If long-term interest rates rise in response to recent short-term rate increases by the Federal Reserve Board, however, some homeowners with precarious finances may find themselves pushed over the edge, said bankruptcy attorney Sidney Turner of White Plains.
"As long as the (house) value holds, you'll probably see more 13s," he said. "People are very astute as to the mechanics of the numbers."
For some people, the growing value of their houses has come at a hard price.
Neville U. Samuels, a short-order cook who emigrated from Jamaica 30 years ago, has pinned his future on a two-family house he bought in Mount Vernon. Samuels worked two jobs six days a week, working for a cleaning service by day and washing dishes at a diner by night.
It allowed him to buy the house on South Sixth Avenue in 1986 for $150,000, he said. The rental income supplemented his salaries and helped pay the mortgage.
"Every penny I ever made" is invested in the house, said Samuels, 56. In 1996 he refinanced and withdrew equity to install new windows on the building, he said.
But Samuels contracted tuberculosis in 2003. He was hospitalized for a month and spent an additional three months recuperating at home. The lost income over the four months led him to fall behind on his mortgage payments. The company that held his mortgage moved to foreclose, and Samuels filed for Chapter 13 protection in January. The case is still under review.
Complicating his case is a demand by the hospital that he pay $96,000 for his treatment. Samuels has no health insurance. The house's value of $300,000, according to his bankruptcy filing, would not be enough to cover the mortgage and the hospital bill.
Samuels, who is divorced, shares his portion of the house with his adult daughter and her 3-year-old son. He is worried about his future.
"I don't want to be on the street with a baby," he said. "It's too much. I'm going crazy."
The rise in Chapter 13 filings locally is at odds with national trends.
Bankruptcy filings of all types in the United States fell in the 12 months ending June. That included Chapter 13 filings, which had risen 17.2 percent from June 2001 through June 2003. Sapir, a local bankruptcy trustee, suggested that the Northeast region recovers more slowly from economic slowdowns, which could account for the increase in 13s.
But some economists say bankruptcy filings are a complex measurement of the health of an economy.
"You would think that in bad times bankruptcy filings would go up, and in good times bankruptcy filings would go down," said Edward Janger, resident scholar for the American Bankruptcy Institute. That typically is the case for business filings, he said, but the correlation between filings and individual consumers is "much looser."
The increase in lending to so-called "subprime" borrowers may lead to more bankruptcies, he said, although the looser lending rules may also help them get back on their feet with new loans, albeit at higher interest rates.
Bankruptcy Court Judge Adlai S. Hardin Sr., who presides in White Plains, said the sluggish economic growth is a factor in the cases he sees.
"Not everybody's rich in Westchester," he said. "Hiring may be on the rise, but it's very slow. The jobs people are getting may not pay as much as the jobs they lost."
THE JOURNAL NEWS
(Original publication: October 6, 2004)
In Westchester and Rockland counties, where median house prices have doubled over the past seven years, a growing number of homeowners are seeking a special form of bankruptcy protection to secure their property when they fall on hard times.
The White Plains office of U.S. Bankruptcy Court reports that the number of Chapter 13 cases in the two counties has risen by nearly a third since 2001. In the first eight months of this year, 331 cases were on the books, up 32.4 percent from the same period three years earlier.
Unlike other bankruptcy chapters, 13 allows the property owner to protect his assets from being sold by a trustee to repay debts. There are significant prerequisites. Among other requirements, the property owner must have a steady income, either from a job or other resources. The repayment plan cannot take longer than five years.
Those are tall orders, and most Chapter 13 reorganizations fail. Jeffrey Sapir, a Westchester bankruptcy trustee, said that several years ago about 85 percent of the plans were dismissed, although today the number is closer to about 65 percent.
The runup in housing values in the northern suburbs may play a part in that trend. With houses worth sharply more, homeowners have more equity in their property that they can tap to pay off bills. Some refinance in order to do so, taking advantage of adjustable-rate mortgages with introductory rates currently running less than 4 percent.
If long-term interest rates rise in response to recent short-term rate increases by the Federal Reserve Board, however, some homeowners with precarious finances may find themselves pushed over the edge, said bankruptcy attorney Sidney Turner of White Plains.
"As long as the (house) value holds, you'll probably see more 13s," he said. "People are very astute as to the mechanics of the numbers."
For some people, the growing value of their houses has come at a hard price.
Neville U. Samuels, a short-order cook who emigrated from Jamaica 30 years ago, has pinned his future on a two-family house he bought in Mount Vernon. Samuels worked two jobs six days a week, working for a cleaning service by day and washing dishes at a diner by night.
It allowed him to buy the house on South Sixth Avenue in 1986 for $150,000, he said. The rental income supplemented his salaries and helped pay the mortgage.
"Every penny I ever made" is invested in the house, said Samuels, 56. In 1996 he refinanced and withdrew equity to install new windows on the building, he said.
But Samuels contracted tuberculosis in 2003. He was hospitalized for a month and spent an additional three months recuperating at home. The lost income over the four months led him to fall behind on his mortgage payments. The company that held his mortgage moved to foreclose, and Samuels filed for Chapter 13 protection in January. The case is still under review.
Complicating his case is a demand by the hospital that he pay $96,000 for his treatment. Samuels has no health insurance. The house's value of $300,000, according to his bankruptcy filing, would not be enough to cover the mortgage and the hospital bill.
Samuels, who is divorced, shares his portion of the house with his adult daughter and her 3-year-old son. He is worried about his future.
"I don't want to be on the street with a baby," he said. "It's too much. I'm going crazy."
The rise in Chapter 13 filings locally is at odds with national trends.
Bankruptcy filings of all types in the United States fell in the 12 months ending June. That included Chapter 13 filings, which had risen 17.2 percent from June 2001 through June 2003. Sapir, a local bankruptcy trustee, suggested that the Northeast region recovers more slowly from economic slowdowns, which could account for the increase in 13s.
But some economists say bankruptcy filings are a complex measurement of the health of an economy.
"You would think that in bad times bankruptcy filings would go up, and in good times bankruptcy filings would go down," said Edward Janger, resident scholar for the American Bankruptcy Institute. That typically is the case for business filings, he said, but the correlation between filings and individual consumers is "much looser."
The increase in lending to so-called "subprime" borrowers may lead to more bankruptcies, he said, although the looser lending rules may also help them get back on their feet with new loans, albeit at higher interest rates.
Bankruptcy Court Judge Adlai S. Hardin Sr., who presides in White Plains, said the sluggish economic growth is a factor in the cases he sees.
"Not everybody's rich in Westchester," he said. "Hiring may be on the rise, but it's very slow. The jobs people are getting may not pay as much as the jobs they lost."
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