High Los Angeles Mortgage Payment May Provide Bankruptcy Advantage
The Means Test can really make life difficult for someone who can't make their high rent and other various payments, but who makes a decent wage. The reason is that "rent" expense is controlled by the government, who basically tells you what your rent should be in the area you live, not what you are actually paying. In Los Angeles, rent can be astronomical, but the Bankruptcy Guidelines may not allow you to utilize your full rent expense for purposes of the Means Test. As a result, you may be unable to make ends meet, but cannot declare a Chapter 7 Bankruptcy because your income is over the State Average.
However, a high mortgage can save you in this situation. This is because the Means Test allows you to deduct your actual Mortgage Expense, not what it ought to be in Los Angeles. So, if you have a very high Mortgage, like almost everyone in California these days, your high income may be offset by a high mortgage, which can allow you to declare a Chapter 7 Bankruptcy, whereas a similarly situated renter will not qualify.
One important Caveat to remember, though. If you have too much equity in your home, which is not much of a problem these days for most people in Los Angeles and California in general, the Trustee could sell your home to take the equity for your creditors. As a Los Angeles Bankruptcy attorney, I can investigate your homestead exemption as well as all other relevant exemptions to ensure that this will not happen.
The lesson here is that there is at least one advantage to having a Huge Mortgage Payment. It makes your chances of declaring a Chapter 7 bankruptcy much better, even though you may not initially qualify because your income is over the State Median.
