Bankruptcy and Foreclosure

There are times when people find themselves in such dire financial straits that they feel bankruptcy is their only option. Many people are under the mistaken assumption that filing for bankruptcy means they get to keep everything, but the harsh reality is that for homeowners, declaring bankruptcy can sometimes lead down the painful road to foreclosure. The headaches and heartaches associated with bankruptcy are difficult enough to deal with without losing your home, and fortunately there are things you can do to prevent a foreclosure before it happens.

Though bankruptcy and foreclosure do seem to go hand in hand, you should know that in some states you may be protected by laws governing foreclosure once you have filed, so you should ask your attorney if these laws cover you. Generally speaking though, regardless of your filing status you are in danger of foreclosure if you have a mortgage and are unable to make the payments. In some cases, people find that once they have liquidated some of their assets they are still able to make their mortgage payments.

Of the various types of bankruptcy, Chapter 13 (also called "Chapter 13 Reorganization") is by far the most common for wage earners and small businesses. In the event of a Chapter 13, you should immediately contact your mortgage company to discuss the situation. It is possible at times to negotiate the terms of your mortgage contract to lower your monthly payment by lowering the rate or extending the term of the loan, thus enabling you to keep your home and your loan in good standing.

In the event of foreclosure, the lender will sell the property in an attempt to recoup their losses. If this happens, it is important to note that you will lose any equity that you may have had in the home and should the lender sell the property for anything less than what you owed, you may still be held responsible for the remaining balance on the loan. As you can see, you would then be without a home and still have at least part of the debt, so foreclosure should be avoided whenever humanly possible. Talking to your attorney is recommended before it becomes an issue, or you may also speak to a foreclosure specialist who may be able to help you to keep your home while you deal with the bankruptcy.

Bankruptcy doesn't mean that you're admitting defeat, it means that you have found yourself in a bad situation and want to do the right thing regardless of how painful or shameful it might feel at the time. Plenty of people come out of bankruptcy with a renewed sense of self worth and a more solid plan for dealing with finances and credit in the future. With some careful planning, your bankruptcy doesn't have to leave you homeless.