Sample Hardship Letter: The single most important question consumers ask themselves during the foreclosure process is whether it is better to lose their house to foreclosure or file for bankruptcy protection.
A foreclosure will remain on your credit report for 7 years, while a bankruptcy remains for 10 years. If you ever plan on getting any kind of loan, especially a mortgage, lenders are going look at a foreclosure more seriously than they will a bankruptcy that doesn’t include a house.
Even in the heyday of the subprime loan era you could obtain a loan one day out of bankruptcy. But a foreclosure was ALWAYS a black cloud and lenders usually wanted three to four years time to pass before considering a borrower for a loan.
No one will argue that the days of banks lending to anyone with a pulse is over. What this translates to for the consumer is that you should expect to have to wait at least four years from the time of bankruptcy discharge to obtain a mortgage with relatively favorable loan terms.
The main goal in trying to perform a loan workout with your lender is to avoid the catastrophic credit implications of a foreclosure or bankruptcy. But sometimes, even the best efforts to save your home and your credit fail.
Hoping for the best but preparing for the worst is the mindset anyone in the foreclosure process should maintain. There are no guarantees that even the hardest efforts to work with your lender will meet with success. If you are to be prepared for the worst, then it is important to consider the process of bankruptcy.
There are different ways to file for bankruptcy and not all of your debts have to be included. So even if faced with bankruptcy, you’ll need advice from someone, either a good credit counselor or a bankruptcy attorney that can walk you through the choices you’ll face.
While the bankruptcy process in the U.S. is governed by federal laws and handled by a system of federal bankruptcy courts, state laws regarding consumer debts and the disposition of property also come into play. There are also different types of bankruptcy filings. No matter which course you take, the filing stays on your credit record for 10 years. This makes it very difficult to get any type of loan during the bankruptcy process and even afterwards. If you can obtain a loan it will surely be more expensive than if you did not file for bankruptcy.
Sample Hardship Letter: The two most common forms of personal bankruptcy are called Chapter 7 and Chapter 13. Under a Chapter 7 filling, you get to keep certain property (this is where state laws vary), but the rest is turned over to a court-appointed trustee that sells your eligible property or gives it to lenders to satisfy your debts. Under a Chapter 13 filing, you pay back your debts under a plan worked out by the court. The trustee collects payments, pays off your debts and makes sure you stick to the plan.
If you own a business, you may want to consider a Chapter 11 filing. This let’s you stay in business, as long as the court and the people you owe money to approve of the plan to pay off your debts. If the court decides a trustee needs to be appointed, the trustee takes control of your business and its assets.
Not all debts can be wiped clean in bankruptcy. The list includes alimony and child support, taxes, court fines and most student loans. New debts, taken on after the discharge, aren’t included. And if the judge finds out you’ve lied or committed fraud, your discharge can be denied.
Sample Hardship Letter: You can also choose which debts you want to have discharged while you keep paying off others. You might want to work out a payment plan so you can keep your car, for example. To do this, you have to sign a “reaffirmation agreement,” which says that you promise to pay off that debt. If you don’t pay it back, the creditor can send it to a collection agency like any other debt.
If you’ve filed a Chapter 7 bankruptcy and gotten a discharge, you’ve got to wait 8 years before you can do it again. There are different limits on filing for Chapter 13, depending on whether you’re trying to get debts discharged.
If you’re having trouble making payments or even if you are behind by a month or two, contact and attorney and/or your lender before you get further behind. If you can, do this before you are 30 days late or before you receive the official “notice of default,” indicating you’re several months behind. This will insure you have time to get prepared before the formal foreclosure process begins. Sample Hardship Letter
First of all, you need to get honest with yourself about your situation. You need to take a good hard look in the mirror and decide if you can really afford your home and if you really want to save it. Either way, you are going to have to make a plan and you are going to have to act on that plan.
You may have to consider moving. Even if you do lose your house, you don’t want a foreclosure on your record when you go looking for a smaller house or a place to rent. One option is to ask the lender to hold off on foreclosing until you sell. If your mortgage balance is greater than your house is worth, you have the option of negotiating a short sale with your lender. You’ll still owe money to the lender even after the house is sold. In some cases, lenders will let you off the hook for that amount rather than go through the expense of foreclosing. But you may not be completely off the hook: you may owe taxes on that amount. Consult an accountant for more information regarding the tax consequences of short sales.
Sample Hardship Letter: You can also try something called a “deed in lieu of foreclosure” which basically means you turn over your house to the lender and walk away without owing anything. However, you’ll need to work this out with the lender as well.
A good attorney who knows real estate and mortgage law can help you when you are facing foreclosure. If you cannot afford proper legal representation, then you should seek assistance from a legal aid or pro bono attorney. You can also seek a referral from your local BAR Association or get help from a legitimate credit counselor (from an accredited, non-profit agency).
A competent third party is a great choice for most people because they may be able to help smooth out the process and make sure that no laws have been broken by the lender when you received the loan.
If it is found that Truth in Lending Act, RESPA and other predatory lending law violations have occurred, then you may have legal recourse to sue your lender. A bankruptcy, then, would not be necessary and you can save your home and your credit form a foreclosure.
If you never seek proper legal advice, then you will never truly know what rights you have to properly defend yourself against your lender.
Deciding whether foreclosure or bankruptcy is worse for you can be difficult to define. What makes this such a difficult question to answer is that no two loans are the same, no two consumer hardships are identical and hence what is best for you will not be the same for others. Getting advice from competent and trustworthy sources and educating yourself about the process of foreclosure and the options at your disposal is the best way to begin to make a sound decision.
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