Understanding the Consequences of Bankruptcy

If you are a homeowner that is currently or soon to be behind in your mortgage payments, experiencing financial troubles, have become insolvent, or owe close to or more on your property than it is worth, you might think that bankruptcy is your best option.

While we are not attorneys and recommend that you speak with competent legal counsel prior to making a bankruptcy decision, we do know that bankruptcy is an extremely serious, life-long scar that creates a life-long blemish on a person's financial record.

The myth many people believe is that they can just file for bankruptcy, wipe away their debt and start over by readily establishing good credit. That is a falsehood. Bankruptcies can stay on your credit reports for over ten years, and can severely cripple your chances of acquiring additional credit-dependent necessities; including, but not limited to: a car loan, a credit card, a gas card, a home loan, an apartment rental lease, or even a job.

While filing for bankruptcy will not automatically mean you wll lose your job, apartment lease, or car, there is a cause and effect relationship associated with filing for bankruptcy and severely damaging your credit. This may cause future employers to pass on hiring you when compared to an equally qualified applicant with good credit; many employers now use credit history as a screening for new job applicants.

Additionally, if you are filing for bankruptcy because of the loss of your home, chances are you will need to rent a new place to live. Many landlords screen rental applicants’ credit reports and could choose to rent to a tenant that appears to be more stable.

Lastly, when you file for bankruptcy you have proven to lending institutions that you are a severely high risk borrower and most times the lending institution will either decide to pass on extending you any credit, or will only lend you money at crippling interest rates with lower credit limits.

Because of all of the aforementioned problems, bankruptcy is listed as one of the top five life changing events a person can experience along with divorce, disability, loss of a loved one, and severe illness. Therefore, bankruptcy is no more recommended than any of the above tribulations.

Are there times when good people are unable to find another way out of their financial troubles? Yes. But unless you have exhausted every possible chance at selling your property, restructuring your [credit card] debt, and finding alternative solutions to your financial woes, bankruptcy probably is not the best option.

The truth of the matter is, most bankruptcy situations can be avoided with proper advice and counseling.

Our short sale advice and services can dramatically increase your chances of avoiding bankruptcy for mortgage related reasons.