Americans are filing mortgage bankruptcy at an unprecedented rate of nearly 2 million filings per year. Many homeowners are facing the decision of having to file personal bankruptcy to stop foreclosure due to subprime lending practices and unemployment. Others can no longer afford mortgage payments due to chronic health problems or loss of a spouse.

Mortgage bankruptcy can be a difficult experience that is frightening, overwhelming, and costly. If debtors are unable to adhere to Chapter 13 payment plans they will fail out of bankruptcy and end up losing their home along with all funds paid to undergo the bankruptcy process. For most debtors, bankruptcy is only a temporary fix that can lead to additional financial problems later on.

Prior to retaining the services of a mortgage bankruptcy lawyer it is important to weigh the consequences. One major disadvantage is bankruptcy is reflected on credit reports for ten years. A few years ago it was relatively easy to obtain credit after bankruptcy. Today, creditors deny nearly everyone with low FICO scores and credit blemishes. Individuals who file for bankruptcy protection will be unable to obtain credit of any kind for at least two years.

Another disadvantage of filing mortgage bankruptcy is credit card companies often terminate accounts or substantially reduce credit limits. If credit remains in place, debtors typically incur a much higher rate of interest. Obtaining credit after bankruptcy requires debtors to demonstrate a history of paying bills on time in order to regain status of being credit-worthy.

Today, the process of filing personal bankruptcy is considerably more involved. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act. Under BAPCPA provisions, debtors must undergo credit counseling through an approved U.S. Trustee agency.

Unless debtors earn less than their states’ median income level, they are required to file Chapter 13 and repay a portion of their debts through a monthly payment plan. Chapter 13 payments typically extend for two to five years. Approximately 60-percent of disposable income is contributed toward chapter 13 payment plans. Debtors cannot incur new debts during the repayment phase without court approval.

If debtors fail out of bankruptcy, creditors can petition the court to request bankruptcy dismissal. When dismissal is granted, debtors lose protection from the court and creditors can commence with collection actions. Debtors are not allowed to file for bankruptcy protection for eight years after the original petition.

Mortgage lenders can commence with foreclosure proceedings at the point where they left off prior to the borrower filing for bankruptcy. If the bank was prepared to commence with foreclosure within 30 days at the time the homeowner filed mortgage bankruptcy, they can commence at that point once debtors fail out of bankruptcy. In other words, homeowners can be forced out of their home within 30 days from the date the court dismisses their bankruptcy petition due to non-payment.

Homeowners should seek out bankruptcy alternatives such as debt consolidation or debt settlement. These alternatives often provide the same result without the severe consequences of mortgage bankruptcy. It is important to note bankruptcy alternatives will impact credit ratings, but they are usually less detrimental. If no other options exist, it is crucial to adhere to chapter 13 payment plans.

Author Bio: Simon Volkov is a real estate investor who offers solutions to debtors facing mortgage bankruptcy and foreclosure. His website offers information and resources on debt consolidation, credit counseling and bankruptcy alternatives. Learn more by visiting www.SimonVolkov.com.

Category: Finances
Keywords: mortgage bankruptcy, bankruptcy, chapter 13 payments, fail out of bankruptcy, bankruptcy alternative