If you are currently struggling to find your way out of debt, filing for bankruptcy may be one of the options that you are considering to do. You may be tempted to file for bankruptcy regardless of the risk of damaging your credit score. It is true that by filing for bankruptcy, you will be able to have a fresh start. The stress of being in a financial turmoil probably But if you are also considering whether to choose to apply for a loan modification or file for bankruptcy, you should consider the advantage and disadvantages of each option.
Bankruptcy may not prevent foreclosure
If your mortgage is what most pushes you to consider filing for bankruptcy, please know that filing for one does not immediately mean that it will prevent foreclosure. As soon as you file for bankruptcy, there will be nothing else you can do to save your home. On the other hand, a refinance or loan modification may not discharge your debt but with a better and lower interest rate of a loan modification, you will be able to save your home by paying slowly but surely.
Bankruptcy does not discharge certain debts
If your financial distress does not come from your mortgage but from other debts, you must know that there are some debts that can not be discharged by filing for bankruptcy. These include child support back payments, criminal fees, federal tax and student loans. Debts like credit card debts and similar are the ones that can be resolved by bankruptcy.
If the former ones are what are causing your financial woes, your better option would probably applying for a consolidation loan and pay them off completely, but even before you do that, you will have to consider the consolidation loan fees and also the interest rate that you have to pay.
Liquidating your assets
Another important drawback of filing for bankruptcy is the requirements to liquidate some of your assets in order to pay off some of your debt that you still have. Whatever assets you have that can be liquidated, will be liquidated. There are more drawbacks that you should know of. It is best to thoroughly discuss these with your financial advisor or bankruptcy lawyer first.
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If you have had a recent financial hardship, job loss or change, divorce, illness, or family problems, you may be able to qualify for one of these programs. In addition, your loan docs may have been drawn incorrectly causing a “truth in lending” or other such violation that makes lenders eager to correct when faced with legal pressure.
There are several possible outcomes:
* The lender reduces your interest rate either temporarily or permanently.
* The lender adds delinquent payments onto the back end of your loan giving you a window where you can skip a payments.
* The lender makes a short term fixed rate a long term fixed rate loan.
* The lender reduces your principal balance lowering your total obligation.
* The lender extends the term of your loan.
* The lender does a combination of these above items.
* The lender refuses to assist you.
Posted on April 20th, 2009 at 12:28 pm
Thank you for the additional info on loan modification!
Posted on April 20th, 2009 at 9:54 pm
Wow great information available here. If loan modification is possible then there is no question to file bankruptcy. Bankruptcy should be the last option to consider.
Posted on June 19th, 2009 at 9:34 am
Loan modifications are a short term band-aid solution to a long term problem. Let’s assume someone owes more on their home than it is worth, and the value will not return to a break-even point for at least 10 years.
Loan modification may ease the monthly cash flow temporarily, but at a pretty big price, including but not limited to 10 years added to the note, back-payments tacked on to the principal balance, temporary interest rate drop.
When all is said and done, if that homeowner, 4 years from now, needs to move, they’re right back where they started, needing to ask the bank for debt forgiveness.
Bankruptcy is something that someone should only consider if they are forced into it, which most people are not. It is far worse than letting your house go into foreclosure because it stays with you for life. Applications ask questions like, “have you EVER filed for bankruptcy.” If the answer is yes, it can, and probably will affect decision making circumstances that you encounter, like getting a job in the financial industry, etc.’
Loan modification can be costly, and doesn’t really help most people. Consider dumping your property by asking for debt forgiveness through a short sale and take back control of your life.
Posted on July 1st, 2009 at 5:35 pm
On this time of year? Mortgages? Hmm..We’ re all dealing with the global crisis and everything related to it, and those really affect all the bank services received. Maybe in autumn, when the recess will diminish…
Posted on July 4th, 2009 at 6:05 am
Loan modification is a far better option if you quality for it. If you do not qualify for loan modification then there are other options too. so better to contact with the lender to find out what are the options available.
Posted on July 31st, 2009 at 11:53 am
There is definitely no “contest” at all between loan modifications and bankruptcy’s. Everyone wins in a successful loan modification, the lender, the homeowner, and the modification attorney. Bankruptcy’s turn out badly for just about everyone most of the time.
Posted on August 25th, 2009 at 9:46 pm
Excelente information and, the additional info on @loanmodification! is nice !
Posted on January 20th, 2010 at 10:02 pm
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