When facing foreclosure, bankruptcy can be an option to help you keep your home.
Similar to a foreclosure, bankruptcy is devastating to your credit rating. However, keeping a roof over your head with damaged credit is better than losing your home.
If you file for bankruptcy protection, foreclosure proceedings may be stopped. In this situation, unlike loan modification or short sale, you do not need to get your mortgage lender’s agreement before proceeding.
How will bankruptcy save my home?
With a chapter 7 bankruptcy, your debts are wiped out by the court. You will be able to request exemptions for important assets like your home and car. Because you may not be required to make your other debt payments (like credit cards and medical bills), income is freed up to be put toward your house payment.
In a chapter 13 bankruptcy, you and the court create a plan to repay your creditors over a 3 to 5 year period. The court may wipe out a portion of your debt. The court will look at your finances closely, and may monitor your progress while you are on this plan. Your mortgage lender may not proceed with foreclosure during this period so long as you are under chapter 13 protection and you make all of your debt payments.
It is crucial for consumers who declare bankruptcy to change their future behavior so they do not end up in the same situation down the road. Having all of one’s debts wiped out by the court creates a strong temptation to acquire more debts (at much higher interest rates, thanks to the damage bankruptcy has done to one’s credit rating).
How to start the process of declaring bankruptcy
You can start by calling a nonprofit housing counselor from a HUD-approved agency to help you determine if bankruptcy is a solution to help you keep your home and achieve debt relief.
Bankruptcy is not right for everyone. The bankruptcy counselors at www.bkhelp.org can help you determine if this is the right option for you. They are also approved by the Executive Office for US Trustees and the U.S. Bankruptcy Administrator to provide bankruptcy counseling in accordance with federal laws. This approval does not imply an endorsement of those services.
However, as a requirement in filing bankruptcy protection, you must complete a 2-hour approved debtor education course. Go to www.bkhelp.org for more information about this educational requirement.
Hire an Attorney
Consumers seeking bankruptcy are strongly recommended to employ the services of a competent attorney. A bankruptcy lawyer will guide you through all of the steps of the complicated bankruptcy process.
Change Your Personal Finances
Credit.org can teach you strategies for managing your personal finances so you can avoid future financial difficulties.