Bankruptcies up 73% for people who own homes worth over $1M [NYP]

A more reputable source:

http://www.bloomberg.com/apps/news?pid=20601206&sid=aOYQzpAp2o9w

"Sept. 9 (Bloomberg) -- Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center, a research firm in Burlingame, California.

More individuals or families with at least $1,010,650 in secured debt and $336,900 unsecured are using Chapter 11 of the U.S. bankruptcy code typically associated with business reorganizations. Falling U.S. home prices leave them unable to refinance or sell properties when they drop below the value of the mortgage, said Joseph Baldi, a Chicago bankruptcy attorney. "

Clearly the there are a bunch of the formerly rich who don't face reality.
Ed McMahan,Michael Jackson, Mike Tyson and tons others..

"Damn, they got a Baldwin!"

$1.1M in Westchester County? Where does he live, in a ranch in Port Chester?

I think with celebrities, its more the rule than the exception.

MC Hammer, TLC, Michael Vick, Kim Basinger, Donald Trump (multiple times), LT, Anna Nicole, Dee Snider, Tom Sizemore, Ted Nugent, and a lot more...

Michael Jackson doesn't face reality, you're right. He faces the sky.

Not that this isn't significant, but I have to say that these might not be as "real" bankruptcies as one would think at first blush: I can't tell you how many times I see a bankruptcy FILING 2 hours before a foreclosure auction because the owner finally wakes up to reality at the last minute. What ends up happening is that the owner files a bankruptcy to forestall the foreclosure auction (automatic stay), does some sort of work out with the lender (sale, short sale, etc.) and then pulls the bankruptcy, with essentially no real "action" bankruptcy wise. So, to some extent, these are "faux" bankruptcies just being used as a tool to postpone the foreclosure auction.

I hear you, but 'fake bankrupcties to prevent pending foreclosure' doesn't really make me feel much better about their finances. ;-)

Well, here's why it makes a difference:

There is a HUGE difference between people who have a positive net worth of $1 million declaring bankruptcy to fend off an auction on a property where they have a positive equity of $500,000 and another $500,000 in securities, etc. , and someone declaring bankruptcy because they have a negative net worth of $500,000, made up of $350,000 in negative home equity and $150,000 in various forms of unsecured debt.

If you had 10,000,000 people in category 1 and 500,000 in category 2, the economy (maybe economy is the wrong term) as a whole would be a hell of a lot different than if you had 500,000 in category 1 and 10,000,000 in category 2.

Not for nothing,30yr, but why wouldn't a guy in category 1 just stay current on his mortgage.
My gut tells me there's unfortunately more people in cat 2 than cat 1

30yrs..... so you're saying these are folks who CAN afford the mortgage, they just forgot to make payments?

I just figured if you can't pay your mortgage and can't refinance it and foreclosure is looming, you've exhausted most of your other options.

Where did I say anything about income? I was aon;y talking about assets. And yes, historically i have seen PLENTY of this: people can't afford to make payments based on their current income and won't go "into their pockets" (i.e. sell off other assets like stocks, bonds, etc.) to come up with mortgage payments. they tend to live in denial about it till the last moment. Think about it: how else do you explain people knowing about the foreclosure for years in RE or months on Coops, but waiting till virtually the absolute last second to do anything about it? It's something which has perplexed me and my partners for years, yet it continues to happen. There have even been several times where they waited too long and we bought the piece before they filed and they lost out on tons of equity. In fact, there's only two ways I've been in bankruptcy court: either as an expert witness, or fighting someone who filed too late and was trying to get that court to overturn the sale; but never as a debtor or creditor (as one would normally expect the reason to show up there).

"I just figured if you can't pay your mortgage and can't refinance it and foreclosure is looming, you've exhausted most of your other options."

You left out the easiest and most important one: sell the f-ing thing. but that mean a major life change (moving out of one's primary residence) so people tend to ostrich it a lot.

"Not for nothing,30yr, but why wouldn't a guy in category 1 just stay current on his mortgage. My gut tells me there's unfortunately more people in cat 2 than cat 1"

Why would a guy just stay current on his mortgage? There's a whole thread recently about the opposite: something along the lines of "Why would a guy who is 30% under water keep paying and not walk away?" or something similar to that 9but yes, that doesn't exactly describe a guy in category 1). There's a whole lot of people with positive balance sheets but CASH FLOW issues. Face it, there's a whole branch of bankruptcy especially designed for such people: Chapter 13. And just because they have $500,000 equity (aside from the RE), it doesn't mean it's liquid: it might be in a 401K or other retirement instrument, non-publicly traded stock, you name it.

And while I agree that there may be a lot more people in category 2 than category 1, my point here is to explain what may SEEM like a huge increase in a figure, which is actually not as big news as it appears, because the thing which is occurring, isn't the same thing which WAS occurring. In other words, if the "increase" in mostly the type of situation which i descrobe, but the old numbers were "real' bankruptcies, the ACTUAL rise may be MUCH smaller than appears because the figures reflect something other that we think is being measured.

no, I think 30yrs is saying these people cannot afford their mortgages BUT they may have positive equity. But unless you have 80 years of real estate experience, including the hard times of the Great Depression, I don't think anyone's judgement is going to be perfect on what we have in store. With all of the job losses we've endured, and with the real estate speculation (second, third homes) among prime borrowers, defaults are bound to rise.

30, I hear you.

I just didn't know this kind of thing was routine:
" And yes, historically i have seen PLENTY of this: people can't afford to make payments based on their current income and won't go "into their pockets" (i.e. sell off other assets like stocks, bonds, etc.) to come up with mortgage payments. they tend to live in denial about it till the last moment. "

That does shock me. I know people can be dumb, but thats wacky.

"Think about it: how else do you explain people knowing about the foreclosure for years in RE or months on Coops, but waiting till virtually the absolute last second to do anything about it?"

Well, all the folks I've known in this scenario have tried to use other assets, don't have the income, and are TRYING to pull it together until the end.

The completely ignorant folks, well, now that you say it, maybe they do exist.
If its some music moron who had someone else pay the bills, figured royalties would be coming, bla bla.

But, I would have figured that those people would have also outspent their assets, too. THe foreclosure idiots are also usually up to their necks in credit card debts and car leases.

You think MC hammer just didn't want to sell his IBM stock?

Today, Sheila Bair pushed for banks to engage in forebearanace for people who have lost jobs, for at least six months. This makes a tremendous amount of sense. It helps the borrowers and if the borrower lands a new job it helps the lender. It's also interesting that this is a very traditional approach that lenders usually take.