Bankruptcy is a major solution that one turns to as a last resort. As a financial solution, bankruptcy is best handled by a financial professional, preferably by an attorney. Naturally, there are side issues that must be taken into account before considering banking.
According to Chapter 7 and Chapter 13, Bankruptcy can be of two kinds. A Chapter 7 bankruptcy can not be filed for home loans. It is only meant for unsecured debt like credit cards, personal loans and store cards. In fact, Chapter 7 bankruptcy can help release funds to enable you to make up payments on your home or even work out a repayment plan with your mortgage lender. In case you go in for foreclosure of your home, you might still be expected to make up a "deficiency balance" which can defined as the money you owe your lender following the auction of your home. Once this is done, you can file for a Chapter 7 bankruptcy to get out of paying this deficiency balance.
What you need to be aware of here is that your credit history will reveal the bankruptcy and foreclosure, which may make things quite unpleasing during the four years following the filing. Foreclosures feature on your credit report for seven to ten years and bring down your credit score by 200 – 280 points.
Coming to Chapter 13 where you reorganiz your debt and agree to a workable repayment plan as per the court decision, bear in mind that Chapter 13 is a solution only if you earn an income high enough to take care of all priority and secured debts, plus 25% of your unsecured debts during the next five years. Apart from this, your mortgage payments could escalate since you not only have to pay monies due during the proceedings, but also pay the lender. Defaulting on your mortgage payments subsequent to a Chapter 13 filing can result in the mortgage company influencing the court to lift the stay and go ahead with the foreclosure, which means losing your home in an auction within weeks.
If you are a homeowner, you can file an individual bankruptcy in your own name without having any effect on your spouse's credit rating, provided your spouse did not sign the mortgage.
Bankruptcy is not something you resort to at the last minute. In some states you need to go through a mandatory weeklong credit counseling session before you file for bankruptcy. So in case you have received your Notice of Default, it is time to act right away.
Finally, be cautious if you receive phone calls or other communication pressurizing you to file for bankruptcy because transactions are you may not get the right advice from someone who is pushing you towards filing for bankruptcy. Preferably, check the yellow pages and go in for a smaller firm to handle your bankruptcy. The larger ones are usually loaded with clients and could miss a thing or two in handling your case.
The best thing to do is to get the advice of an attorney and financial advisor for your specific situation and then decide whether you should consider bankruptcy or foreclosure.