Some people facing imminent foreclosure often turn to bankruptcy for help. However, that's a personal decision, with banks and mortgage companies legally unable to force people to file. Despite that, some people do feel forced because foreclosure of their home seems certain. Bankruptcy halts foreclosure proceedings, but it is not a bailout. The relief is only temporary, as it provides the homeowner with time to reach an agreement with the bank on missed payments. Some people who file for bankruptcy lose their house to foreclosure several months later because they simply cannot afford the payments.
Considerations
Decisions about bankruptcy require careful consideration, even when foreclosure is a possibility. Bankruptcy information remains on credit reports for 10 years, making it hard or impossible to qualify for loans at reasonable rates for a while. Bankruptcy makes sense for people who have a reasonable chance to save their homes from foreclosure. However, if the effort fails, the former homeowner is left with a bankruptcy and a foreclosure on credit reports. Those are the most negative credit events possible and will lead to poor credit for years.
Mortgage Payments
Bankruptcy does not lower mortgage payments or forgive missed payments. The bank can rewrite terms of the mortgage to make it more affordable but is under no obligation to do so. Homeowners in bankruptcy must agree to a payment plan that addresses missed payments as well as the current monthly payment. Some people accomplish that through Chapter 13 bankruptcy, which reorganizes debt over three to five years.
Living Expenses
Chapter 13 allows for reasonable living expenses, including mortgage payments for a primary residence. Money remaining is paid to unsecured lenders such as credit cards. Some people in Chapter 13 gain court approval to spend nearly all their money on food, shelter and other reasonable living expenses because of their level of income. Unsecured creditors are not paid in that situation ,with the debt wiped out at the end of the bankruptcy. Chapter 13 requires three to five years to complete.
Alternatives
People facing foreclosure should seek alternatives to bankruptcy. Various foreclosure-avoidance programs are available through direct negotiations with lenders or with the assistance of government-certified housing counselors. Options include forbearance, which tacks missed payments onto the end of the loan, or payment plans allowing a larger payment each month until the loan is current. Reaching out to lenders before foreclosure proceedings can prevent homeowners from feeling as if they are forced into bankruptcy.
Help
Housing counselors approved by the U.S. Department of Housing and Urban Development are located nationwide. Initial consultations are free, and services are considerablly more reputable than those provided by some so-called "foreclosure rescue" firms. Referrals for housing counselors are available by contacting local charities such as the United Way.
0 comments:
Post a Comment