By Victoria Knight
The thought of declaring bankruptcy and being free of your debts or having the option to repay them slowly with he courts protection may seem tempting but be warned, it can have long term effects on your life in terms of credit, mortgage rates and credit card offers.
Filing for bankruptcy
The first thing you should do is seek the services of a reputable bankruptcy attorney. Your local or state bar associations should be able to refer you to one. When you go meet the attorney, remember to take all your financial documents such as bank statements, paycheck stubs, copies of any mortgages and car loans and any outstanding bills.
Your petition (bankruptcy paperwork) must contain every debt you owe. If you’re found lying in your petition, even by inadvertent omission, you could be fined or sent to jail.
Your attorney will ask you about your secured debts; these are debts in which creditors hold a security interest in your unpaid assets such as mortgages and cars, if these are unpaid, they can be repossessed. He will also ask you about your unsecured debts such as credit cards and various bills. Some debts which don’t get removed by filing bankruptcy are child support, delinquent taxes and student loans.
You must disclose any earned income within the last six months otherwise your case will be rejected.
There are two forms of bankruptcy: Chapter 7 and Chapter 13.
Chapter 7 means having your debts discharged after your liquid assets are used to pay some of your debts. Chapter 13 basically entails you paying your debts through a three to five year plan.
Alternatives to Filing for Bankruptcy
- Second Mortgages
A second mortgage is basically a loan secured by a homeowner’s equity (the market value of your house minus the balance on your first mortgage). You can borrow up to eighty percent of the equity of your property known as a home equity loan. Second mortgages are usually taken out by people looking to consolidate their debts. A Chapter 7 bankruptcy will cancel any mortgage including any second mortgages.
- Consolidating your debts
Consolidating your debts means you combine all your debts into one loan. This is usually done by people who want to take out a loan to pay off debts. For example you may have several debts such as a car loan, student loan and unpaid credit card bills, if you consolidated your debt in one loan you could save on interest rates.
Recovering Financially
Bankruptcy can have a long term negative impact on your life. You will have to rebuild your credit by trying to repay any debts that you didn’t include in your bankruptcy petition. If you want to apply for a mortgage your best options are to try to qualify for FHA or VA mortgage loans. Your lender will set the rate for new mortgages and be prepared to be rejected for zero down payment mortgages.
About Victoria Knight
Victoria Knight is a finance informant and blogger for Ratelines.com, where you can find great rates on mortgages, CD’s, and credit cards .
