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Fighting to Keep the Roof
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But in some situations, a bankruptcy filing makes sense, says Steven Ramsdell, a bankruptcy attorney in Alexandria.
"For people who have missed house payments, their credit has usually been dinged up already," Ramsdell said. "The credit ramifications of saving a house through bankruptcy should not be a deterrent if they can in fact save it."
Before filing for bankruptcy protection, consumers must attend credit-counseling sessions held by designated groups throughout the country.
Once they do, said Ramsdell, the kind of bankruptcy protection most effective in saving homes is Chapter 13, which immediately halts a foreclosure sale and freezes all collection actions for debts that predated the bankruptcy filing.
The court then approves a repayment plan that determines which creditors get paid back and when.
Under that arrangement, a person has up to five years to pay missed mortgage payments, essentially forcing the lender into a repayment plan and forcing a time frame that most lenders would not otherwise accept, Ramsdell said.
But while trying to make good on past debt, filers must keep up with their regular mortgage payments and other living expenses. For people without sufficient cash flow to make those payments -- plus contribute to the late ones -- this course of action is futile, Ramsdell says. It also makes no sense to file for bankruptcy protection when the house is worth less than the mortgage balance.
"If you owe $480,000 on a house that's worth only $400,000, it may not make sense to hang onto the house," Ramsdell said. "That's a hard thing for people to accept."
