When deciding whether or not to reaffirm your house, you should ALWAYS consult with your attorney, and trustee Martino explains why:

Some things have been bothering Phil Martino lately as he oversees the handling of personal bankruptcy cases.

The most glaring mistake, the Quarles & Brady lawyer says, is that far too few debtors turn in the keys to their homes when faced with big outstanding mortgage balances. Martino is one of about 30 Chapter 7 trustees in the U.S. Bankruptcy Court in the Northern District of Illinois.

Instead, they either “reaffirm” the $200,000 they owe on a house now worth $100,000, or they roll the dice and hope that the bank doesn’t knock on their door and evict them from a home because they’re emotionally attached to it or fear they won’t find another place to live.

“They came to bankruptcy to get a fresh start,” Martino said, adding that they should use the court to do just that.

The U.S. bankruptcy code, Martino explains, allows underwater homeowners to give the keys back to the bank. That’s the course of action that he recommends in most circumstances when the debtor owes far more than the house is now worth. Martino estimates that only about a third of the debtors that he sees in such housing situations will take advantage of the fresh start.

Don’t even get Martino started on student loan debt. Unlike home and auto loans and credit card debt, student loans rarely are dischargeable in bankruptcy court; strict limits were instituted after abuses in which professionals would get advanced degrees — and better-paying jobs — and then file for bankruptcy so they could skirt the debt.

Martino, while acknowledging that both sides have good arguments, calls the current student debt load a “horrible problem that is going to get worse.”

Also, college and graduate schools often are too expensive for people to afford without loans.

“I’ve seen people with more than $100,000 in student loan debt with jobs paying $30,000 a year,” Martino said. “Given the economy, we may be creating a group of almost indentured servants who have to work to pay off their student loans.”

High credit card debt is another problem he sees regularly.

“When I see people under 30 in bankruptcy court, I’ll check to see how many kids they have, whether they’re getting support for those kids — invariably they’re not — and their credit card debt will be in the range of $50,000 to $100,000,” Martino said. “I’ll talk with them about credit card debt and how seductive it is.”

People often promise to never fall victim again to credit card debt, but it’s not unheard of for the same person to file for bankruptcy two or three times or more, he said.

As a trustee in bankruptcy hearings for individuals, Martino sees people “cry and be devastated and embarrassed and nervous.”

Nine months ago, Martino oversaw a first meeting of creditors for an entrepreneur who was “terribly hurt” after her business had failed and she filed for bankruptcy.

“I spent time with her trying to make her understand that the foundation of American success is to encourage capitalism,” he said. “Bankruptcy is a fail-safe so if they fail, they’re not creating generations of debt.”

She later sent him a letter, which he still has, thanking him for his kind words.