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How Homeowners Avoid Bankruptcy

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If your primary goal is to keep your house, you have options available. It’s important to work with a bankruptcy attorney who understands the ins and outs of Chapter 13 bankruptcy. In Harrisburg PA, bankruptcy lawyers can help you understand bankruptcy laws.

It’s also important to make timely mortgage payments and avoid taking on any new debt before you file for bankruptcy. 

Work on your credit score 

While this may seem obvious, it’s important to focus on making all future payments on time and practicing responsible credit card use. Credit scores often put more emphasis on events that occur in the past 24 months, so focusing on these aspects of your financial health can have a dramatic effect on your credit score within two years. 

Many homeowners consider bankruptcy because they are struggling to pay their mortgages. Fortunately, there are options that can help them resolve their debt and keep the roof over their heads.

If you’re behind on your mortgage, filing for bankruptcy can help stall foreclosure and give you a chance to catch up over the course of a three- to five-year Chapter 13 debt repayment plan. Additionally, you can also save your home if you file for Chapter 7 bankruptcy, which liquidates assets but not your primary mortgage in order to provide a fresh start.

Get your budget in order 

While unexpected medical bills or job losses can put anyone in a precarious financial position, a person can also get into trouble with poor spending and savings habits. A good place to start is by putting together a monthly budget.

The first step is to calculate all of your income and subtract expenses. Divide the remaining amount into categories of needs, wants, and debt repayment. Items like rent or mortgage payments, utilities, food, and transportation are considered necessities. Anything that exceeds 50% of your paycheck should go towards your savings and debt payments.

Consider eliminating unnecessary expenses by switching to cheaper streaming services, cutting your cable subscription, eating beans and rice and brewing your own coffee. The goal is to live as frugally as possible until you can afford to pay off your debts without filing for bankruptcy. If you are struggling to get back on track, seek professional advice from a bankruptcy attorney or credit counselling agency.

Get a debt management plan 

A debt management plan can help you avoid bankruptcy by consolidating your debts and making one monthly payment to a credit counselling agency. These organisations are able to negotiate with creditors to lower interest rates, waive late fees, and reduce other charges. This can be a great way to save your home from foreclosure and get your debt under control.

There are two types of bankruptcy: Chapter 7 and Chapter 13. Both involve a legal process known as the automatic stay, which legally halts creditors from collecting on debts and pauses foreclosure proceedings while your case is open. Both offer exemptions that allow you to keep your essential belongings, like your clothing, furniture, and retirement funds.

In Chapter 13 bankruptcy, you can also catch up on mortgage payments and remove junior mortgages through a debt repayment plan, or lien stripping. However, you must be able to make your required payments during the three- to five-year term of your debt repayment plan.

Talk to your attorney 

It’s always a good idea to consult with a bankruptcy attorney, even if you do not plan on filing for bankruptcy. There may be unforeseen solutions to your debt problems that can save you from declaring bankruptcy.

In most states, a homeowner can protect some equity in their home through exemptions during either Chapter 7 or Chapter 13 bankruptcy. However, these exemptions are limited to things that a person needs in order to survive, not luxury items like jewellery, cars, or collectibles.

If you are considering bankruptcy, do not sell or give away any assets before speaking with an attorney. A court will view this as an attempt to abuse the system and is likely to treat it accordingly. Instead, consider taking on a second job to increase your income and putting the extra towards paying off as much debt as possible. This may require some sacrifice with regard to time spent with family, but it is an option many have used successfully to avoid bankruptcy.

Adam Mulligan, a psychology graduate from the University of Hertfordshire, has a keen interest in the fields of mental health, wellness, and lifestyle.

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