| Hopefully, by clearing up a few common | | | | your liability to further credit damage and a larger |
| misconceptions, you'll be better equipped to choose the | | | | deficiency judgment. |
| most effective course of action for your situation. | | | | 3. Misconception #3: To avoid bankruptcy, I can use a |
| | | | debt management program to lower my payments |
| 1. Misconception #1: A foreclosure is better for my | | | | and avoid filing for bankruptcy. If you do choose to go |
| credit than filing for bankruptcy. Sometimes this is true, | | | | with a debt management service, be sure that you |
| and other times it's not. Typically, you'll get a different | | | | have the resources to make your modified payments, |
| opinion depending on the source. Ultimately, it depends | | | | and you may very well be able to avoid a bankruptcy |
| on how the action is reported to the credit agencies | | | | all together. Just be very careful which debt |
| and how many other negative reports are made, | | | | management program you choose. If they ask for any |
| including the number of late payments or | | | | kind of money upfront, you're dealing with the wrong |
| non-payments related to your mortgage. A bankruptcy | | | | company. Only enlist the services of non-profit debt |
| may even "hide" a foreclosure on your credit report if | | | | management organizations. They will charge a small |
| the property is included in the bankruptcy. There is no | | | | monthly service fee along with your agreed-upon |
| guarantee, however, so to be safe, always try to sell | | | | payoff amount. |
| your property outright and use a short sale if | | | | If your ultimate goal is to keep your house and you |
| necessary -- even if the property is included in the | | | | have a reliable income, your best option is to contact |
| bankruptcy filing. If the short sale is reported, it will | | | | your lender first to see if they'll work out a repayment |
| show up as a "settled debt" rather than a | | | | plan with you. If the bank does not work with you and |
| "foreclosure," which is basically a repossession of the | | | | you have other delinquent debt(s), especially credit |
| property for non-payment without the debt being | | | | card debt, you should consult a qualified attorney |
| satisfied. The short sale will also lessen your liability in a | | | | regarding your bankruptcy options. In some cases, the |
| potential "deficiency judgment" brought on by your | | | | attorney can negotiate lower payments for you. |
| lender at a later date. | | | | If you're just flat out of money, it may be prudent to |
| 2. Misconception #2: If I file for bankruptcy, I get to | | | | consider giving up your house and focus on mitigating |
| keep my house. This is not necessarily accurate. And | | | | damage to your credit. To do this, don't let the bank |
| in most cases, it doesn't work out this way in the end. | | | | foreclose on your property; instead, find someone you |
| In a chapter 13 bankruptcy case, your attorney may | | | | trust to handle selling your house using a short sale as |
| be able to negotiate a reduced mortgage payment, | | | | quickly as possible. You may want to file for chapter 7 |
| and/or principal loan balance. However, if you're unable | | | | bankruptcy, depending on how much you owe and the |
| to make your new mortgage payments, and do so on | | | | amount of your assets. |
| time, you'll lose the protection of the bankruptcy, and | | | | If you can afford it, work with a not-for-profit debt |
| the foreclosure proceedings will resume. In a chapter 7 | | | | management company to lower the payments on |
| filing, you have really no choice but to give up your | | | | your unsecured credit cards debt and avoid filing for |
| house. Either you make up any back payments and | | | | bankruptcy. |
| keep paying, or the lender will initiate the foreclosure | | | | Disclaimer: I'm not a certified accountant or a licensed |
| process. However, you can still mitigate some damage | | | | attorney. |
| at this point and attempt a short sale in order to limit | | | | |