Is Bankruptcy a Way to Save a Home?

 By: David Reinholtz
In this current economic situation, people are desperate to save their homes, and will listen to just about any suggestion, or infomercial, that comes their way. There are a number of businesses out there that are aiming to take advantage of the current downturn and to take advantage of people's desperation, and some of these opportunities are legitimate while others are downright fraudulent.

Of course, this isn't to say that any promise or offer that is broadcast over some media outlet, whether it's on the radio, television, in the newspaper, or online that doesn't live up to its claims is fraudulent, but the information that homeowners really need to know to help themselves can often be clouded by deception.

One of these offers that have been pouring through the airwaves during the past year or more is that bankruptcy could be a way to keep from heading to foreclosure. Of course, many of us have heard that bankruptcy should be the absolute last step anyone should take.

Bankruptcy's black eye

The reason that it is frowned upon by so many financial experts and advisers is that once a person files for bankruptcy, then it stays on their credit report for ten years. There is no way to get away from a bankruptcy filing when it comes to credit score or reporting. Many banks and financial institutions won't deal with a person who has filed for bankruptcy, regardless of how long ago that filing was or what the circumstances were that surrounded it.

Regardless of what some slick commercial advertises, bankruptcy should always be considered the last option in dealing with creditors, a defaulting mortgage, or other financial situation.

Understanding bankruptcy and foreclosure

People who are facing foreclosure on their homes will immediately think that it may be a solution to their troubles. After all, a bankruptcy filing will stop any foreclosure process. At least for a while. But there are some very important factors when considering filing for bankruptcy if you or your client is facing foreclosure.

Once you file for bankruptcy, it will be reported to the three major credit agencies. Regardless of what happens from that moment on, the black eye is on your credit score for the next ten years. But know that, though bankruptcy will stop the foreclosure process, it will not stop it from being completed if you don't have the means or resources to pay for your mortgage moving forward.

How foreclosure works

When a person faces foreclosure, that means that he or she has fallen behind on his or her mortgage payments for a considerable period of time. It could be several months, or even just one or two. Each bank or financial institution will handle when they file foreclosure on mortgages differently. Though the person fell behind on their mortgage payments, it doesn't always mean that they can't afford it moving forward; it may simply mean that they can't manage to catch up on their payments.

In this economic climate, it behooves any homeowner facing even the prospect of a foreclosure to contact their lender immediately, explain the situation, the reason for getting behind on the payments, and see if there is any way to restructure the loan so that their current payments are considered on time, rather than continually being two or three or four months behind.

Bankruptcy can help a homeowner if he or she is able to afford their mortgage payment but only fell behind for a short period of time. Still, financial institutions aren't in the business of holding onto homes that have lost value or won't be paid for over several months, or years. They may be willing to negotiate a solution that benefits all parties without having to go through the nightmare process of bankruptcy.
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In our previous installment on life after bankruptcy we discussed the curveball filing for bankruptcy can throw at you. In this installment we will continue to review ways in which you can rebuild your financial life after filing for chapter 7 bankruptcy or chapter 13 bankruptcy. Bankruptcy attorneys recommend that individuals who have filed for bankruptcy begin to re-establish their credit as soon as they possibly can.
If you are considering personal bankruptcy it is important to understand the laws and how they affect your situation. New bankruptcy laws have been put into place to help individuals get out of their current situation before they have to resort to filing for bankruptcy. New bankruptcy laws make credit counseling mandatory within one hundred and eighty days of an individual filing for bankruptcy. Individuals must relay all pay stubs that are received within the sixty days prior to bankruptcy be filed with the court.
The task of rebuilding your life after you have filed for bankruptcy can seem quite overwhelming. It is important to recognize that your life is in the midst of a transformation. Bankruptcy allows individuals to start over; it provides a clean slate where you are in control of your life unlike your previous life which was being ruled by your debt.

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