In partnership with Karen Natapoff
Senior Loan Consultant
Bankruptcy is an uncomfortable subject for a variety of reasons. The most obvious is the potential havoc it can wreak on your finances. Running a close second is the negative stigma that is often attached to the process. This negativity is important to mention because strong emotions can sometimes lead to unsound financial decisions with devastating results.
Bankruptcy becomes a viable option for someone who is â€œupside downâ€ in terms of cash flow. In other words, when a person has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.
One of the worst things people can do in this situation is to borrow more money to try and pay off their debts. On paper, this is clearly an unwise financial decision. In the real world, however, it is very common for individuals to pursue this strategy in an attempt to buy time and hold off on filing for bankruptcy. On the surface, this is certainly a noble notion; however it can often compound the problem and serves only to delay the inevitable.
For many homeowners who have upside down cash flow, speaking to a qualified mortgage professional as soon as the problem is recognized is a much better option.Â It is important to explore alternatives before incurring late payments which can impact the credit score and further limit alternatives.
If bankruptcy is the only option, seek out a reputable bankruptcy attorney and credit counselor. A qualified mortgage specialist can provide references for you as well, as he or she works with these professionals on a regular basis. Reliable references are essential in this case because experienced professionals greatly increase the odds of a successful bankruptcy experience. Itâ€™s that simple.
When filing for bankruptcy, be completely honest and accurate regarding every aspect of your financial situation. This includes any changes to your income which may occur throughout the process. Bankruptcy is a federal procedure, adjudicated by real judges, and scrutinized by representatives who coordinate with the Department of Justice, the FBI, and the IRS.
Here are some additional steps you can take to make the bankruptcy process as painless as possible:
Tips for Rebuilding Credit:
While it does take time, there is definitely life (and credit) after bankruptcy. The waiting time will depend on the type of loan program (FHA or conventional), whether the bankruptcy is Chapter 2 or 13, the reason for the bankruptcy, and the particular investorâ€™s guidelines.