Bankruptcy Protection - What Should You Do?

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If you are seriously considering filing for bankruptcy protection, you will need to retain the services of an attorney that specializes in the bankruptcy laws in your state.

There are many lawyers that are "threshold" lawyers. That means ANYTHING that crosses the threshold of their office is what they are specializing in at that given time. Are they going to give you the best service possible? Maybe yes, but probably not. You are the responsible party for any poor advice they may dispensed so, be careful.

Some attorneys will tell homeowners to file for bankruptcy protection and that will protect them and solve all their problems. Bankruptcy does put a hold on the process. It will not stop the inevitable. It gives you a little time, but the end result is almost always that the property will go to the courthouse steps for auction. Then you will wind up with no house, plus a foreclosure and a bankruptcy on your credit report for the next 120 months or 10 years.

What you need to understand is that a lot of attorneys will tell you to file Chapter 13 to stop a foreclosure. Bankruptcy protection will temporarily stop the pending foreclosure sale, but this is only a delay. The foreclosing attorney for the lender will eventually file a "relief of stay" and the foreclosure process will resume until you reinstate the loan, pay it off, or lose your house at auction. Meanwhile the monies you were behind, before you got into the foreclosure mess, have been accumulating and are still due.

You also need to understand that in a Chapter 13, you are placed on repayment plan (typically 5 years) with all your creditors. If you fail to make the payment plan as agreed, the trustee will have your bankruptcy dismissed and then you will most likely have to file Chapter 7. You will probably lose your home anyway. But, now you have a foreclosure, a Chapter 13 bankruptcy AND a Chapter 7 bankruptcy in your credit history.

What they do not tell you is that a good portion of your weekly payments are directed toward the trustees and YOUR attorneys fees! The money does NOT go toward catching you up! So, while you are struggling to get caught up, your attorney fees are bleeding cash from your repayment efforts.

Also, while you are paying thousands a month to the repayment plan, some of that money is going to the back payments on your mortgage. What about the interest on that past due money? It is added to the pile of money you owe making your balance higher and higher to the point that you will be upside down on you home.

The interest will accrue (increase) at an alarming rate. That means that if your balance on that home is $100,000.00 and your payments are $835.80 (including taxes and insurance), the majority of your payment is interest (Example: $550 interest, $97 principal = $647). After 2 years in the repayment plan, your payoff could be as high as $125,000. Now you owe payments AND interest on $125,000 instead of the original $100,000.

Filing for bankruptcy protection is not a very good way to get caught up. So, be very careful. Always consult a licensed attorney for any legal advice.

There is no magic solution for getting out of debt. The chances of you winning the lottery or your rich uncle dying are VERY slim. Do not believe anyone that tells you differently.

Keep in mind that a house is just sticks and bricks. There are many houses out there and you can always find another house when things improve. The stress caused from financial difficulties are the number one cause of divorce and broken families. Do not let this happen to you!

Beware of Foreclosure Scams

Forbearance

Foreclosure Options

Refinance Your House

Selling Your House

Short Sale

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