When debts have become unmanageable, filing for bankruptcy protection may be the best option. It is an effective way for people to get back on their feet, because it offers a debt relief over a shorter time period than debt consolidation plans. It is often especially attractive to homeowners because eliminating other debt often frees up the funds necessary to keep the family home.

It is important for homeowners to understand how bankruptcy impacts home ownership. Some homeowners may not realize that a lender can foreclose on a home even after the owner has filed for bankruptcy.

Bankruptcy is an effective means of preventing foreclosure. Once bankruptcy is filed, an injunction known as the automatic stay goes into effect. The automatic stay bars all collection efforts from creditors, including repossession and foreclosure attempts as long as the sheriff’s sale has not taken place.

The automatic stay generally remains effective for the as long as the bankruptcy case lasts. In chapter 7 bankruptcies, this could be several months. With Chapter 13 bankruptcies, it could be a few years. There are some important caveats. With secured property, like a house or car, the person filing bankruptcy must continue to pay his/her mortgage while staying current on bankruptcy plan payments, if one exists, to maintain the automatic stay.

If a person fails to make payments on their mortgage, foreclosure after bankruptcy is still a possibility. The reason has to do with the underlying security agreement itself. Bankruptcy eliminates the duty to repay the money for a debt, but it does not remove the collateral agreement. Even though the obligation to pay the debts are discharged, the property itself is still secured by the mortgage or other security agreement. If a homeowner does not cure mortgage arrears in the bankruptcy and continue to make payments on their home, the mortgage company retains the right to take possession of a home and sell it is through foreclosure.

Types of foreclosure

When a person no longer wants their home there are two principal ways a mortgage company can take possession of a home — a deed in lieu of foreclosure or foreclosure. A deed in lieu of foreclosure requires that the homeowner sign the property over to the lending bank. While this may help a homeowner’s credit score by avoiding a full foreclosure, it also means giving up possession of the family home right away. Homeowners often opt for full foreclosure because it allows them to save up money while staying in their home throughout the foreclosure process.

A traditional foreclosure can take place in one of two ways. In a judicial foreclosure, the lender uses the court systems to obtain ownership of the property. In a non-judicial foreclosure, the home can be sold at an auction. Each state has different processes for how a lender can do a non-judicial foreclosure. Even if the homeowner has filed for bankruptcy, the lender must still follow one of these processes to obtain ownership of the home.

Dealing with foreclosure after bankruptcy

If you are considering filing bankruptcy or facing a foreclosure, it is important to seek legal advice. A knowledgeable Los Angeles bankruptcy lawyer will educate you on your options, making sure you understand how your choices could impact you so you. Once you are informed about the decisions available to you, you will feel confident about making the best choice for yourself as you prepare for a fresh start in the future.

Once you file for bankruptcy, you may believe that it will be years before you are eligible for another loan. This is because the process negatively affects your credit score. After bankruptcy, it is common to experience difficulty opening charge accounts or purchasing items on credit. In addition, you may face heightened interest rates on loans. Fortunately, there are ways to help improve your credit score in as little as one year after liquidation.

Before you begin the process, make sure that the accounts that were associated with the bankruptcy hearing are documented as such. Furthermore, these accounts should show a balance of $0 if you filed Chapter 7 bankruptcy. If a creditor reports the account as delinquent after the liquidation process, your credit score will suffer. Once you square away your status, you can work toward raising your credit score.

First, it may help to open a charge account at a furniture or appliance store (or any retailer with big-ticket items). These stores are the first to grant credit after bankruptcy. It takes more time to be approved for credit by a standard credit card company. While an appliance or furniture store account may have a high interest rate, you have to start developing credit somewhere.

To boost your score, you should make a purchase from the store, putting down at least 50 percent of the item’s cost. This significant down payment will minimize the interest that you pay on the account. With a majority of the cost put down, you will also have the ability to pay off the outstanding balance relatively quickly.

Next, you can open a secured credit card account. This type of account requires you to secure your charge account by depositing money into a bank account. It is best if you chose a company that will allow your secured account to transform into unsecured status with time. The interest rate is higher for an unsecured account; however, this type of credit arrangement will help raise your credit score.

The best way to improve your score is to make timely payments. This includes payments for new accounts and the payments for any assets you kept within the bankruptcy process, such as your home mortgage or car loan. If you handle your finances with care, you will be more appealing to prospective future lenders. Opening and paying off additional accounts will increase your credit score.

Finally, it is important to monitor your credit report. This can help you catch any flawed information. You can obtain a free annual copy of your credit report from each of the three major credit bureaus. If you spot an issue, report it to the credit bureau immediately.

Nothing is worse than an unexpected illness. In addition to health complications, you often confront the financial consequences of medical treatment.

Moreover, rising health care costs typically enhance the effect of what appears to be a “simple” illness or procedure. Furthermore, as employers continue to cut insurance benefits, medical problems can tend to become financially insurmountable.

According to a 2007 Harvard Medical School and Ohio University survey of personal bankruptcy filers, nearly 66 percent of bankruptcy petitions were filed due to medical-related debts. Most respondents had more than $5,000 (or 10 percent of their pretax income) in medical expenses, mortgaged their homes to fund the medical treatment or lost income due to their illnesses.

The study found that medically bankrupt families had an average of $17,943 in out-of-pocket expenses, including $26,971 for those who lacked insurance and $17,749 for those who had insurance. Approximately 80 percent of the study participants had health insurance.

Fortunately, there are ways to deal with medical debt. If you are overwhelmed with expenses, Chapter 7 bankruptcy is one possible road to security. Chapter 7 bankruptcy is a form of personal bankruptcy, which clears out unsecured debts. The process generally moves fairly quickly. The average case takes as little as four months from the time of filing.

Bankruptcy courts classify medical debt as unsecured debt, which means that it may be discharged within the process. An unsecured debt is one that is not protected by a physical item of property as collateral. If you are unable make payments on unsecured debts, creditors cannot generally recover any items. However, they may be able to sue or garnish your wages.

Within the Chapter 7 process, all eligible debts included in the filing should be discharged — any legal obligation to repay is extinguished.

If you elect this form of bankruptcy, all information related to your medical bills, including outstanding payments, must be included in the filing.

Medical issues can happen unexpectedly and create a deep void in your pocket. On top of hefty medical bills, prolonged illness or injury can interfere with your ability to work. Missed work equates to less income, which additionally complicates the financial battle.

Chapter 7 bankruptcy provides the opportunity for medical-debt management. It does not take long before a filer can be on the path to a new beginning.

If you are overwhelmed by serious medical debt, contact an experienced bankruptcy lawyer today. An attorney can help you sort through your finances and construct a solid debt-reducing plan.