When faced with tough financial challenges and you are no longer able to meet your mortgage obligations, all avenues to stop foreclosure exhausted, most people have the question to declare bankruptcy or not.
But what is bankruptcy and how does it stop foreclosure?
The free dictionary defines it as a federally authorized procedure by which a debtor, an individual, corporation, or municipality is relieved of total liability for its debts by making court-approved arrangements for their partial repayment. When a homeowner files a bankruptcy case, the lender gets permission to sell the home to recover their money.
Declaring yourself bankrupt may not be a good idea but if it is the only solution to save you from emotional distress then so be it. The good news is that it will most likely stop foreclosure and that you can start all over again.
Before filing for bankruptcy, please consider the following repercussions:
Despite its ability to stop foreclosure, it will mess your finances for an extended period, usually up to 10 years. During this time you will most unlikely be unable to access any form of credit; no loans, no credit cards and sometimes it can even cost your job. Who needs that? Therefore before you consider taking the shorter route of bankruptcy, think about how it will affect your future investments
It will not save you from all debts: While it stops foreclosure, bankruptcy declaration will not spare you from other debts such as student loans, taxes, child support among others. These debts will follow you hence bankruptcy might not be ideal after all. Therefore if your idea of declaring for bankruptcy is to avoid such debts, then you might need to re-evaluate your plans.
If you file for Chapter 7 bankruptcy, then you are opening up for a liquidation process to repay your other debts. It will not only stop foreclosure but result to the disposal of other assets to liquidate your creditors. The result of this is that you might lose some of your property during the process; it is, therefore, your call to make as to whether you are into it.
Filing for bankruptcy can lead to loss of personal property; while it can stop foreclosure, depending on your state, you can end up losing personal items such as furniture, part of the money recovered during the liquidation process since you might not be allowed to keep everything.
While a looming foreclosure is a nightmare, just imagine how devastating losing your prized possessions will be if in the process the trustee also decides to auction them while recovering their debt. These items might include portraits, jewelry, etc. hence think carefully before taking this step.
Before declaring yourself bankrupt, make sure you understand the repercussions to avoid feeling conned; but even better try to make the other available avenues work to stop foreclosure and prevent the disdain bankruptcy can cause to your credit worthiness.
Be wise when deciding to make a bankruptcy declaration, because it will be harder to recover from 10 years of a bad credit report than you can imagine.