Question: Can filing for bankruptcy prevent foreclosure? Which is worse on my credit?
Answer from Melanie Dressel, CEO and President, Columbia Bank
Filing for bankruptcy will not necessarily prevent foreclosure. But this is an area that is getting a lot of attention from Congress because of the rise in foreclosures across the nation.
Filing for bankruptcy will follow you for many years. It will have a negative impact on your credit score, affecting your ability to get loans (and in some cases employment
). Before considering bankruptcy, I highly encourage people to seek
advice. The Beehive’s
Financial Coach can point you in the right direction for this.
Also, call your mortgage lender to see if they can work with you. Most lenders do not want to foreclose on homes and may be willing to create a plan that will work for you and the bank.
Learn How to Avoid Foreclosure
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- Identify foreclosure warning signs. Being able to recognize financial problems early can help you avoid stress, debt, and foreclosure. These include:
- Maxing out credit cards
- Using credit to pay for day-to-day expenses
- Being unable to pay your bills on time
- Having to choose which bills to pay
- Paying only the minimum amount on credit cards
- Applying for new credit cards after maxing out old ones
- Avoid foreclosure by taking necessary steps as soon as you get behind. There are a number of resources that can help if you can’t make payments. The first steps you should take are:
- Talk to your lender immediately. Don’t wait!
- You may also want to contact ahousing or debt counselor. They can help you put together a plan to repay your debt.
- Know your rights. Each state has its own foreclosure laws, counseling agencies, and assistance programs.
- Create a budget to reduce your expenses, and start making payments.
- Know your options once you’ve begun the foreclosure process. There are several options, besides bankruptcy, that allow you to keep your home and may even make your payments more manageable. The quicker you act, the more options you’ll have:
- Repayment Plan: This usually involves making full monthly payments plus a little extra each month to repay the delinquent amount over a period of time.
- Special Forbearance Plan: Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable.
- Mortgage Modification: This may allow you to refinance the debt and/or extend the term of your existing mortgage loan.
- FHA Insurance Fund: If your loan is an FHA-insured loan, your lender may be able to obtain a one time payment from the FHA Insurance Fund to bring your mortgage loan current with payments.
- Refinance: This allows you to use the equity that you have established in your home to pay the delinquent amount.
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