Imagine two debtors. Debtor #1 owns a yacht in Huntington Beach and a vacation home on the Mission Viejo lake. For his residence, Debtor #1 lives in a penthouse apartment in Irvine, which he rents at a steep price. Debtor #2 is a homeowner, and struggles to make the payments on the mortgage for her small condo in Santa Ana. Both debtors find themselves struggling to make payments of their respective assets, and each debtor decides to file for bankruptcy. Which debtor does the Bankruptcy Code favor?
That’s right, Debtor #1! For while the creditor is forced (under bankruptcy) to modify the terms of payment to help Debtor #1 keep his yacht and vacation home, Debtor #2 is unable to get any help modifying her mortgage payments on her primary residence. Somehow, the Bankruptcy Code has chosen to make modification of loan terms possible for every single kind of item — except the single-family residence.
In a way, then, the Bankruptcy Code serves as a backwards Robin Hood: letting the jet-setting crowd live in their beach houses, while forcing the struggling masses of Orange County to abandon the homes they grew up in.
For more information, read this article on Bloomberg: Buy a Beach House
