About Bankruptcy, Foreclosure, and Repossession
If you are suffering a severe financial set-back, you may feel compelled to take drastic measures as a way to relieve yourself of mounting financial stress. Each measure discussed in this section—bankruptcy, foreclosure, and repossession—might be avoided if you reach out for some help and make a plan. In some cases, especially in a poor economy, they can’t be avoided.
Bankruptcy
Health-related bankruptcy is on the rise for all Americans and more so for families of children with special needs. Not only do the bills stack up, but the time it takes to tend to them easily slips away while caring for your child. When you do finally open the mail and add things up, you might find you’re in financial trouble.
What Should I Do if I Think I Am In Serious Financial Trouble?
First, you might find some relief through the 2010 Health Care Reform (Patient Protection and Affordable Care Act):
- Health care benefit providers are prohibited from excluding coverage to children based on pre-existing conditions.
- A standardized annual out-of-pocket spending limit will be established so no family would face bankruptcy due to medical expenses.
- Annual and lifetime caps (a maximum amount paid on claims) cannot be enforced by private health insurance companies.
Second, avoid turning medical debt into credit card debt, which is one of the most expensive debts of all (high interest, recurring fees on unpaid balances). As a rule of thumb, do not use your credit cards to pay your medical bills.
Third, review the section "Create a Debt Reduction Plan.” You might get ideas on how to improve your finances.
Fourth, contact the National Foundation for Credit Counseling and explain your situation. Someone may be able to offer a debt solution that works for you.
National Foundation for Credit Counseling (NFCC)
Call 1-800-388-2227
Visit www.nfcc.org
Write
National Foundation for Credit Counseling
801 Roeder Road, Suite 900
Silver Spring, MD 20910
If none of those provide a workable solution, contact a bankruptcy lawyer for additional advice.
Filing for Bankruptcy
Filing for bankruptcy should always be an absolute last resort—it is a very serious credit decision. Bankruptcy is the most damaging thing you can do to your credit. It can stay on your credit report for seven to 10 years. During that time, you might be able to get a loan or credit card, but you will pay high rates of interest and high fees.
There are two types of bankruptcy. For each one, you must pay a fee to file for bankruptcy and any fees charged by your lawyer. Before considering whether or not to file, ask yourself the question, “What do I need to do differently so I don’t get in the same financial trouble again?”
Chapter 13
This type of bankruptcy is generally a debt repayment plan that you negotiate with your creditors. You may be able to negotiate to have some of your debt reduced. The payment plan stays in effect over a period of three to five years. Chapter 13 bankruptcy stays on your credit report for seven years from the date you make your final payment of the negotiated plan.
When to Consider Filing Chapter 13 Bankruptcy
When you think you can pay off your debt—possibly at a reduced amount—in three to five years.
Chapter 7
All of your debts will be erased, and you start your credit life over. This type of bankruptcy stays on your credit report for 10 years from the date of filing.
When to Consider Filing Chapter 7 Bankruptcy
When you think you can’t pay off your debt in three to five years, even if the amount of your debt could be reduced.
Where to Look for a Bankruptcy Lawyer
The American Bar Association (ABA) is a national organization of professional lawyers who specialize in many areas of the law, including bankruptcy. The ABA’s Web site provides many resources to the general public about a variety of legal topics, and a way to search for a lawyer in your area.
To contact the ABA:
Call 1-800-285-2221
Visit www.abanet.org ; to search for a lawyer in your area, click “Public Resources” then “Find Legal Help”
Write
American Bar Association
321 North Clark Street
Chicago, IL 60654-7598
You can also look for a bankruptcy lawyer at the National Association of Consumer Bankruptcy Attorneys (NACBA), the only national organization of professional bankruptcy lawyers. Contact the NACBA to find a bankruptcy lawyer in your area:
Call 1-800-499-9040
Visit www.nacba.org ; you can search for a lawyer in your area on the site’s home page.
Write
National Association of Consumer Bankruptcy Attorneys
2200 Pennsylvania Avenue NW, 4th Floor
Washington, DC 20037
Note! Be sure to ask if you can speak with a bankruptcy lawyer also knowledgeable in disability-related issues. While that knowledge is not necessary for a lawyer to give you legitimate bankruptcy advice and service, a lawyer experienced with disability-related matters might be able to serve you better.
Foreclosure
A mortgage default or delinquency occurs when a mortgage payment is 30 days past due. While each lender handles this situation differently, a foreclosure can occur when a mortgage payment is approximately 90 days past due. At that time, the bank that approved the mortgage loan can issue a Notice of Sale. This means your lender can legally sell your home through a public auction. On the date of the auction, you will be required to move out of your home.
Information related to a foreclosure can stay on your credit report for seven years.
What Should I Do if I Can’t Pay My Mortgage?
If you are in financial distress and think you might be unable to pay your mortgage, or have missed mortgage payments, take action immediately. As tempting as it might be, Do Not Wait. The four most important things to do are:
- Call your lender immediately and explain your situation. Because foreclosures are expensive for banks, they may be inclined to look for alternatives to foreclosure. Be prepared to propose a payment plan. Ultimately, you’ll want to work one out that is acceptable to both you and your lender. Here, too, ask what fees or charges might be waived.
- Find a HUD-approved housing counselor in your area for support and recommendations on how to keep your house. Housing and Urban Development (HUD)
Call 800-569-4287 to find a HUD-approved housing counselor near you. - Ask your HUD-approved housing counselor about the Home Affordable Modification Program , which is part of the 2009 Financial Stability Plan. The program provides eligible home owners opportunities to modify their mortgages to make them more affordable. For more information about this program, visit www.MakingHomeAffordable.gov .
- Stay in touch with your lender as you implement your payment plan and get back on track with your finances.
- Avoid foreclosure prevention companies. Like credit-repair and debt-relief companies, their aim is to profit off of your difficult situation, not help you keep your home and protect your credit.
A “Hardship Withdrawal” from Your Employer Retirement Plan May Help You Avoid Foreclosure
Some employers allow employees to make early withdrawals from their retirement plans to make payments on their primary residence (not a rental or investment property) as a way to prevent a foreclosure. This is called a hardship withdrawal.
Repossession
If you miss payments on your car loan, your lender can legally take the car from you, or “repossess” it, for the lender really owns (possesses) your car until you pay off the loan in full. If you’ve missed a car loan payment, or think you are about to miss one, take the same type of actions described for missing credit card or mortgage payments: call your lender immediately, explain your situation, propose a payment plan, and ask what fees or charges might be waived.
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