Foreclosure in Chapter 7?
Question:
Answer:
A foreclosure will affect your credit rating in a big way, but bankruptcy will affect it longer and to a much greater extent. The new bankruptcy laws allow you to file Chaper 7 instead of 13 if you pass a test that shows you do not have the assets or ability to pay your unsecured creditors. I am not an attorney, but have recently gone through bankruptcy and now foreclosure.
I strongly recommend that you go to a non-profit website called hummingbirdcreditcounseling.or... They are approved for most federal bankruptcy districts. Take the first counseling session. You can take it annonomously and it is free. It will go over all alternatives - pros and cons - for your situation. If you end up filing for bankruptcy I recommend you use hummingbird for your required counseling.
I understand that now if you go chapter 7 and make more than the average income in your area, you are required to be audited by a CPA. My trustee was very thorough & the process, although very professional, was grueling - much worse than an IRS audit.
Chapter 13 would have been rough for me. It was much more expensive - like having the court and your attorney babysit you for 3 years.
IF you decide to consider bankruptcy, be sure to hire an attorney, and one that specializes in bankruptcy. I bought a book and the information/instructions were very different than what my attorney did. It was difficult for me to come up with the attorney fees (they want payment before filing because attorney fees can be included in bankruptcy), but worth every cent!
The court looks very carefully at your expenses for 90 days prior to filing. Be sure to not charge anything during that period. I owed a small balance from opurchases within 90 days of filing. My attorney said the bank would not fight it due to the small amount. They did & we had to settle with that bank.
They also look carefully at hiding assets and giving away stuff, especially one year prior to filing. Don't play games with the bankruptcy court. Honesty will get you the fresh start that the law was intended to give, if you really need it. Deception will get your case thrown out with a possibility of criminal prosecution. And you WILL get caught.
Now on credit recovery? With foreclosure some mortgage banks will work with you after a couple of years, but you'll likely pay a higher interest rate because you will be a higher risk. Pretty much the same is true with bankruptcy. Mortgage banks allow letters of explanation as a part of he underwriting process.
I got a credit card right away from a bank that was not listed in the bankruptcy. I had an excellent credit rating for years prior to the bankruptcy. After a couple of years some banks will give you a credit card with a decent rate. Many banks, especially the ones that carry retail store specialty cards, will categorically turn you down for any credit if you have anything negative on your credit rating. Foreclosure and other negatives are on the ratings for seven years. Bankruptcy stays on for ten years. Also, anytime you apply for a car or house loan, you may have to tell them about the bankruptcy on the application - after ten years.
But having a great credit rating isn't everything. I blew thousands of dollars in savings making minimum payments, in an effort to preserve my credit rating. i also bought a house that was a lot more than I could afford, using "creative" financing, which is both expensive and risky.
Filing chapter 7 won't help... It will only prolong the process. When you file bk, there is an automatic stay against debt collection of any kind, but all the mortgage company has to do is to file a motion to lift the stay. If you can bring the payments current during that time, great... but if you can't the bankruptcy court will grant the motion and they will be able to continue with the foreclosure. The whole point in Chapter 7 is discharging unsecured debts like credit cards and medical bills.
If you file bk regardless of the chapter, it will take some time to rebuild your credit and establish yourself as a good credit risk. Often it will be about 7 years before the bk will fall off your credit report. Good luck and I will pray that things start turning around for you. Blessings.
More Related Questions & Answers...