Problems in one area of your financial life can quickly ripple out to influence other aspects of your life. For example, high levels of medical debt or credit card debt could quickly begin to exert pressure on your financial stability.
When you have to try to make the monthly minimum payment on an outstanding debt, you may struggle to pay all your utilities or your mortgage on time. Some people can even make the regrettable mistake of cashing out some of their home equity as a way to pay off otherwise unsecured debts.
Protecting your home is a natural instinct
Your home is likely the largest asset that you own, other than retirement and investment accounts. The equity that you have built in your property can be an important nest egg that you rely on in the future. You don’t want to lose your equity or your home simply because of issues with unsecured debt.
People often think of bankruptcy as a negative or dangerous process, but it can be beneficial for homeowners struggling to pay their mortgage. There are at least three ways in which bankruptcy can help you keep your house if you worry about losing it because of your financial circumstances.
The automatic stay protects you from imminent foreclosure
If your lender has served you with notice that they intend to foreclose or you already have a court date, bankruptcy protection can halt that process. When you initially file your application for bankruptcy with the courts, you receive what is known as an automatic stay.
Before the courts review your application and determine if you are eligible for bankruptcy, they will still protect you from aggressive collection tactics on the part of your creditors. The automatic stay starts the same day that you file with the courts and extends until you either receive your discharge or get notified that you don’t qualify.
An automatic stay won’t protect you from legal action that has already taken place, but it can stop pending court dates and other collection attempts, buying you a little bit of time in which to correct your financial circumstances or even renegotiate your mortgage.
Chapter 13 bankruptcy could help you secure better terms
Sometimes, people buy houses with variable rates on their mortgage or other issues that could lead to financial complications in the future. If the terms of your mortgage aren’t particularly favorable and you find yourself worrying about a balloon payment or upcoming rate adjustment, Chapter 13 bankruptcy may give you the grounds to negotiate better terms with your lender.
Because foreclosure and the sale of your property can often cost the bank quite a bit of money, they may be willing to work with you as part of your Chapter 13 proceedings to renegotiate and reaffirm the mortgage, thereby protecting their investment and yours.
Bankruptcy frees you from the pressure of unsecured debt
Whether you have been living beyond your means and using credit cards to pay for things or have simply incurred substantial medical debt due to a sudden illness or an accident, debt can quickly consume much of your income each month.
If you find yourself struggling to allocate enough money to pay your mortgage out of each paycheck, the relief that bankruptcy offers from those debts could make it so that you have more financial wiggle room with your current level of income. The results of that could very well be an improved ability to budget and thereby pay your mortgage on time and in full every month.
If you find yourself worrying that your debt and financial circumstances could result in the loss of your home, it may be time to explore whether either Chapter 7 or Chapter 13 bankruptcy could offer you financial relief and protect your status as a Texas homeowner.