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The Hidden Cost of bankruptcy

04 Feb

…and Options You May Not Have Considered

For someone who is considering declaring bankruptcy it may feel like the whole world is upside-down, when in reality it is only the mortgage on their home that is upside-down.

“Individuals considering bankruptcy are too wrapped up in the emotions of the situation to see other options. But when you’re standing on the outside and not in the middle of the financial mess, it’s easy to see other alternatives.” – Dave Ramsey (daveramsey.com)

I am not here to tell you that there is never a time when filing for bankruptcy is a necessary solution, and if that is in fact the case I will be glad to introduce you to the best guy in the Denver metro area to help with that process. However, in most cases where an unmanageable mortgage is the main reason for considering this alternative there are much better options available that will cost you a lot less.

Count the Cost

Bankruptcy and Foreclosure are two of the most devastating things to a person’s credit rating and can affect more areas of your life than one may think initially. In addition to making it difficult to purchase a home again it will be difficult to get a loan for anything in the near future. These negative items stay on a credit report for 7 to 10 years, and can also affect current and future employment, security clearances, and insurance rates just to name a few. There is also an emotional cost. Declaring bankruptcy is ranked among the top life-altering events one can endure and it can negatively affect one’s emotional and psychological state.

Alternatives

Most of the time it is possible for a distressed homeowner to avoid bankruptcy by avoiding foreclosure. In many cases the mortgage payment is the largest portion of an individual’s debt. It’s helpful to look at one’s debt without the mortgage payment in the picture. Would this alleviate the strain? Is the debt that is left after the house payment enough to go through all that is required to file for bankruptcy? If the answer is no, then there are certainly better options available to deal with the mortgage problem.

For example a short sale is a dignified alternative to foreclosure, with less harmful effects on a homeowner’s credit score. Many government and lender programs allow a short sale with relief from the debt owed with no deficiency judgment, and may even put cash in the homeowner’s pocket for relocation assistance. This type of program gives the homeowner the dignity of selling their home and leaving on their own terms.

 

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