Ed McMahon Faces Foreclosure On His Home - Is Bankruptcy Far Behind?

Foreclosure problems don’t just hit the poor or middle class.  Johnny Carson’s sidekick, Ed McMahon, is facing possible foreclosure on his home.  The reports say he has had health problems that have kept him from working, like so many Americans today.   

The house is supposed to be listed for sale at just below $6 million and  he is believed to owe over $4 million on it,.  I saw some reports that said that he is hundreds of thousands of dollars behind in payments and others that said his problem may be unpaid bills which resulted in a judgment against him that he couldn’t pay off. 

Either way he got into trouble, it probably never occurred to Mr. McMahon that he would have trouble selling his home if he wanted or needed to.  Like so many people in the United States, I doubt that Mr. McMahon thought he would be unable to work or that he would find himself unable to make the payments on his home or debts. 

Mr. McMahon has come out publicly to speak about his problems, and said that he felt the need to speak for all the other hard working people who are facing similar problems, and urged them to be optimistic

All kinds of people get into trouble that they never expected.   In 20 years as a bankruptcy attorney, I never met someone who wanted to file for bankruptcy.   People who file bankruptcy come from all walks of life and there are many good people who find themselves in bankruptcy.   One of the best reasons to look at bankruptcy is to try to prevent a foreclosure. 

All types of bankruptcy can stop (at least temporarily) foreclosures under most circumstances, but people usually look to a reorganization (repayment ) bankruptcy - either Chapter 11 or Chapter 13 to give them time to sell the home or to catch up missed payments.    Mr. McMahon wouldn’t qualify for Chapter 13 bankruptcy since the size of his mortgage exceeds the debt limits of Chapter 13, but for many families trying to save their homes from foreclosure, Chapter 13 is a good option to explore.    

Chapter 11 is for people who exceed the debt limits of Chapter 13, but the attorney fees are much higher and the legal work more complicated. Hopefully Mr. McMahon will be able to straighten this mess out without the need to file bankruptcy but if he can’t, you may see his name as the most recent entry in the long list of people who have filed for bankruptcy to protect a home from foreclosure.

Call me old fashioned, but what happened to buying a home with the goal to pay it off and live without payments?  I wonder why would anyone who has made the money Ed McMahon has a mortgage AT ALL?  Why would anyone making that kind of money subject themselves to a multi million dollar mortgage?  Why not live in a smaller home and save up to buy a home for cash, or at least to make a larger downpayment?  Or, if they felt that the mortgage gave them tax benefits, buy a less expensive home and put money aside for emergencies.  

For that matter, why would any of us buy houses that bury us in debt  if we could buy something smaller?  And maybe McMansions will become less popular and smaller and more affordable houses will become the fashion.  As more people find themselves in financial crisis, this old fashioned way of thinking may come back in style.  I will keep my fingers crossed.

By Susanne Robicsek North Carolina Bankruptcy Attorney