Bankruptcy does not always solve all of your problems. It is just a drastic measure that most people often take to alleviate the current financial burdens of all their prior debts. Unless you have an enormous amount of debts that total to twice the amount of your disposable income, then bankruptcy may not be an avenue for you to seize.
Bankruptcy vs. debt negotiation
Many of your debts can be individually resolved by either making smaller payments or even placing payments on hold to a future date. There are solutions to all credit problems.
Consider using other debt negotiation mechanisms that would result in a better credit standing than filing a mortgage with a bankruptcy, if possible. After all, bankruptcies will remain on your credit profile for 10 years. Although it does not prohibit you from re-building your credit profile, it may hamper you in the next 2-4 years…especially if you want to purchase a home.
Most lenders and creditors are willing to work with you in your times of struggle because they know that life-altering events can happen to anyone. However, creditors are looking for signs that will indicate to them that you are diligent about pursuing a path that will resume financial stability in the near future. A mortagage with a bankruptcy attached is not a sign of due diligence in resolving your financial affairs.
Most lenders and creditors will want you to present a hardship letter with statements that explains the following:
- What caused the hardship?
- When will the hardship end?
- How do you plan to repay the past debt?
What usually will be a determining factor as to whether or not they are willing to extend a helping hand will be your ability to prove and/or document the current steps that you have implemented to change your situation. Such as
- Government assistance (food stamps, TANF)
- Part time employment (taking a part time job until permanent employment can be secured)
- Collecting on past debts that are owed to you (
- Liquidating assets, (such as selling a car, real property, boat, antiques, etc.)
- Providing alternative sources of money such as rental income or assistance from family members, friends)
- Future settlements that can be proven, such as insurance money, trust funds, lawsuits, tax refunds, etc.)
In any event, filing a mortgage with a bankruptcy would certainly not be the best alternative as opposed to negotiating your debts.
It May be a Long Process
The process won’t happen overnight, expect to mitigate your losses within 2 to 4 months and sometimes longer. The reason for this is most lenders and creditors are large companies that are complex and each division work independently of each other. For this reason, often times, the paperwork and communication is a slow process and may require several departments management approvals prior to granting final approval.
Whatever the case may be, consider other alternatives prior to making a firm decision about filing a mortgage bankruptcy.