Housing News

Bankruptcy Filing: What's In It for You?

Your decision can have damaging consequences.

According to the Bankruptcy Code, Chapter 13 is available for an individual with regular income whose debts do not exceed specific amounts; it is typically used to budget some of the debtor’s future earnings under a plan through which unsecured creditors are paid in whole or in part. By allowing borrowers to extend their payments due to a number of financial reasons, this provision can be used to save your home in case you cannot maintain your mortgage payments. Upon filing, the borrower must still pay all his debts in full within two years while maintaining a clean credit record.

The American Bankruptcy Institute reports that the total chapter 13 filings increased 14 percent to 353,828 in the 12-month period ending Sept. 30, 2008, from 310,802 in the same period last year.

Like it or not, since the figure only reflects the third quarter, we expect it to increase in the next report because the unemployment rate has steadily risen after September. Joblessness has marred the financial standing of Americans and they find relief in Chapter 13 but take note that it should be the last resort for any distressed homeowner. Such action can have drastic consequences that will tarnish your credit reputation and future transactions.

First, filing fees and lawyers’ charges vary. Nevertheless, it can cause further damage to your depleted savings. The process seeks to declare that you’re penniless but ironically, it will still require you to shell out hundreds of dollars. Take note of high court costs too. Second, if you miss out on filing the correct schedules of your assets and liabilities as well as other documents within 15 days, you will be barred from filing for bankruptcy for a longer period. This can even put you in a more esoteric position. Third, the bankrupt debtor must be ready to lose some if not all of his assets. Be aware that your creditors can take legal action when claiming your possessions so you may lose your car, other properties and even appliances. Fourth, your credit score will skyrocket for a number of years. In fact, it affects credit history from the period when your application is pending. That means you’ll lose your chances of obtaining a low-interest loan in the future because of the higher default risk that you bear. Fifth, should you transfer to another house, you’ll have difficulty being serviced by utility companies because of the bankruptcy filing. Who wants to wait for years before a telephone line is installed?

As such, Chapter 13 should be the last option. You may save your home from foreclosure but you’ll suffer from the consequences in your credit history.

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