Foreclosure And Bankruptcy: How Bankruptcy Can Help And When It's Not Worth It
If you're currently facing a foreclosure and considering bankruptcy as an option, you may be curious about how much bankruptcy can really help and whether it's even worth it. Below are common myths surrounding bankruptcy and foreclosure and the facts behind them.
Myth: Filing for Bankruptcy Will Permanently Stop a Foreclosure
Fact: While a petition for bankruptcy filed prior to a foreclosure notice will temporarily put your foreclosure on hold, it isn't a permanent option.
When you file for bankruptcy, something known as an automatic stay will go into effect. The automatic stay is a temporary way to keep creditors at bay and will remain in effect during your bankruptcy proceedings. While your foreclosure will not be permanently put on hold, this stay can give you time to renegotiate with your mortgage lender or consider other options, such as a short sale.
Myth: Filing for Chapter 13 Bankruptcy Means I'll Be Able to Avoid Foreclosure
Fact: While chapter 13 bankruptcy does allow you to pay off any debts in arrears, including your mortgage, you must also be financially able to stay current on your mortgage payments in addition to paying the arrears.
Whether chapter 13 bankruptcy will be helpful to you or not will depend on the reason you're filing bankruptcy in the first place. If you've currently lost your job and have no income to pay off your debts, chapter 13 likely won't be much help. Unlike chapter 7, chapter 13 requires you to pay off your back debts while also keeping current on your bills. If you don't make enough to make your current mortgage payment, paying the arrears won't do anything and your home will end up foreclosed upon anyway.
Myth: Foreclosure Is Something to Be Avoided at All Costs
Fact: While foreclosure can certainly have a negative impact on your credit score, it can sometimes be for the best.
If you're barely making ends meet when it comes to paying your mortgage, sometimes going through with the foreclosure can be a necessary step towards financial stability. During the foreclosure proceedings, you'll no longer be required to make monthly payments. This means these payments can go towards a savings account which can be used to find cheaper living arrangements and pay off other debts you may have. While your credit report will be seriously dinged, there are ways to build your score back up. A foreclosure isn't the end of the world and for some, it may be the best option available.
To learn more about your options surrounding foreclosure and bankruptcy, consult with a bankruptcy attorney (such as http://www.tblakelaw.com) immediately.
Share