Bankruptcy can protect and assist debtors, while keeping them in their homes and taking care of other debts. Though many people see bankruptcy filing as a “way out” of paying what they owe, often it can allow the debtor to simply pay back debts in a more manageable time frame.
Falling Behind on Mortgage Payments
Generally, people who take out mortgages are hard-working people who intend to pay what they owe. However, unexpected circumstances often arise as a result of unemployment, medical bills, business failure, or other financial hardship.
Due to an unexpected situation, honest people may find themselves slipping behind on their mortgage payments. Anyone in this situation know that late notices come in the mail, debt collectors begin calling, and the situation can quickly become overwhelming and it may feel like foreclosure is the only options.
Calls and demand letters from debt collectors and mortgage companies can be frightening. Bankruptcy can stop all of that. As soon as an individual files bankruptcy, debt collectors must immediately cease all contact with the individual who owes them money. For this reason, the peace that is found after filing bankruptcy is virtually priceless for many.
Using Bankruptcy to Keep Your Home
Depending on the situation, bankruptcy may be able to provide the opportunity to make a five year plan to “catch up” on a mortgage while remaining in the home. Although this may also be possible through government-incentive mortgage modifications, it has been discovered that some lenders are either hesitant to approve modifications because of potential re-default, or they charge enormous servicing fees. In contrast, the protection of the bankruptcy court can put a stop to continued accrual of interest and late fees while re-paying arrearages and other debts.
Using Bankruptcy to Give Up Your Home
Even if it is determined that it is best to give up the home, filing bankruptcy puts an immediate halt to any foreclosure proceedings that may have started, allowing time to make informed decisions. Even if eventually choosing to forfeit the property, bankruptcy can often allow a person to reside in the house for several months at no cost while making future housing arrangements. Bankruptcy can also provide protection from tax penalties that often come with the debt-forgiveness of foreclosure or short sales.
How Bankruptcy Affects Your Credit Score
Many people worry that bankruptcy will ruin their credit ratings but foreclosure can be equally, if not more, damaging. While it is true that bankruptcy can harm credit scores, it also can offer opportunities to re-build credit. Because bankruptcy allows freedom from other debts, creditors may find a person discharged in a bankruptcy to be less of a risk, giving a clean slate from which to re-establish credit scores.
Never Hide from Debt
Often, it’s tempting to hide when faced with a mountain of debt that seems insurmountable. It can feel embarrassing to admit to financial problems and seek out help; powerlessness may prevail. However, ignoring financial problems will simply make them grow bigger; they won’t go away.
When an individual is behind on a mortgage and other debt payments, it’s best to take action right away. Getting help from a financial professional does not imply irresponsibility. In fact, seeking out a bankruptcy attorney to assist with an impending foreclosure provides education and options. The debtor will be empowered to informed decisions and get back on track as soon as possible, whether through bankruptcy, foreclosure, or other available means.