When is Bankruptcy the Right Option for Stopping a Foreclosure?
Deciding to file for bankruptcy is a decision that no family or person wants to have to make. But sometimes it may be the only solution to a devastating financial situation. If a homeowner is facing foreclosure we recommend that they exhaust all avenues and options before deciding to file for bankruptcy. Filing for bankruptcy should always be the homeowner’s last resort.
Before a homeowner files for bankruptcy it is important to first understand what a bankruptcy entails. Bankruptcy is a legal proceeding in which an individual who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court.
Filing bankruptcy immediately stops all of a homeowner’s creditors from seeking to collect debts from him or her (including his or her mortgage), at least until all the homeowner’s debts are sorted out according to the law.
It is important to understand that bankruptcy laws and exemptions differ from state to state. The homeowner must also understand the different types of bankruptcies and what the effects of filing bankruptcy has on his or her future personal finances.
Filing for bankruptcy is not as easy as one may think to stop foreclosure. New bankruptcy laws went into effect October 17, 2005. The new bankruptcy laws require, among other things, individuals to go thru a minimum three-month credit counseling period before filing for bankruptcy. These new laws were put into affect in large part to stop people from abusing the bankruptcy laws by filing for bankruptcy a few days before his or her foreclosure.
In some situations filing for bankruptcy may be the homeowner’s only solution. If the homeowner chooses to file for bankruptcy the homeowner can sometimes keep his or her home, and some, but certainly not all debts can be forgiven.
Unfortunately, often times there are bigger reasons for not filing for bankruptcy. A bankruptcy will be on the homeowner’s permanent record making it difficult for the homeowner to qualify for future loans (including car and home loans as well as credit cards). Ultimately impairing the homeowner’s credit for many years unless he or she seeks credit repair services.
If a homeowner does decide to file for bankruptcy he or she needs to be informed of all their alternatives in advance. In addition to understanding the impact of what a bankruptcy will do to his or her long-term financial status. It is also important to work with someone in the homeowner’s local community who is a licensed bankruptcy attorney.
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