Post # 1
A friend of mine is 4 months behind on her mortgage ($6,000) and has decided to file bankruptcy instead of paying her mortgage.
Se seems to think bankruptcy will be the answer to her prayers. She said it’ll “wipe out” her horrible credit so she can “start over”. She said it’ll stop the foreclosure process and the bank will be “forced” to rewrite the loan at a better interest rate. Is she insane or is she right? I’m just under the impression that filing for bankruptcy is a desperate act that should be done as a last resort. She could pay what she owes to prevent the house being foreclosed, but then she’d be flat broke.
Anyway, is she right?
Post # 3
I’m not an expert in any case, but I think she will lose the house. After bankrupcy your credit is extremely bad and no, I don’t think the bank will want to loan anything to her. They won’t negociate lower insterest rates with a bad payer. I’ve heard it takes 7 to 10 years building a good credit after you’ve filed for bankrupcy. Meanwhile, it’s extremely difficult to get credit for anything, and she especially won’t be offered a 200K loan for a house. No way. It’s a terrible idea.
I don’t know what to suggest, I don’t know what happens when you’re late on mortgage, but I would expect losing the house either way, if she doesn’t get her finances back on track. She needs to go to the bank and asks for counseling before it’s too late.
Post # 4
@IheartUFC: Where is she? That makes a difference.
Post # 5
If she’s in a US state with a high foreclosure rate like Nevada or Florida, she “may” find the bank willing to rewrite her loan, but that’s really a long shot, even in those areas, or heck even in a city like Stockton, CA (one of the highest foreclosure rates in the country) she’ll have a hard time. Banks are far more likely to just sell the house at auction. Can she not just get her payments current then refinance ? Interest rates are great right now and if you’re current on your payments then it’s not too hard to refi unless your credit is really really bad. Even if you’re underwater, you may still be able to refi as long as you have ok (not even great) credit.
sounds like your friend is in for a very rude awakening.
Post # 6
Depending on where she lives, there may also be free credit counselling available. Bankruptcy is an extreme choice for such a relatively small debt.
Post # 7
- Wedding: April 2013 - Rhode Island
Bankruptcy ruins your credit for like 10 years. She absoutely has no idea what she’s talking about. There are lawyers who specialize in bankruptcy. She should talk to someone like that before doing this. It is a last resort action.
Post # 8
@AB Bride: She lives in NH.
Post # 9
House prices are trending up. The bank will probably take her house and sell it, and she won’t be able to another one for 7 years or so, since this bankruptcy/foreclosure will be on her record for that long. Depending on what state she is in, she may or may not be able to find a rental easily because of the banktuptcy on her record.
Post # 10
She needs to see a lawyer before she does anything. Not only does it destroy your credit and negatively affect you for at least 7 years, if she has funds readily available to fix her current financial affairs, her bankruptcy could be denied by a judge.
Post # 11
@IheartUFC: pretty sure she’ll lose her house.
Post # 12
Post # 13
3 pm rolled around Friday and I convinced my friend to rally and save the house. SHe had $4,500 and needed another $1,500. Thatb$1,500 was lawyer’s fees because the bank sent the paperwork to the lawyer by the time she called Monday wanting to pay the mortgage. Anyway, SO and I “loaned” her $850 (does it count as a loan if the recipient is flat broke and will never repay it?) and her dad gave her $650. She raced to Walmart and wired the money to the bank and saved the house. Before all this happened, she arranged for a roommate to move in soon so that will help a lot to cover the mortgage.
Meanwhile her carwas repossessed yesterday, but that’s probably a good thing. She can use public transportation until she can buy another car. Her car paymentwas $500/mo because she rolled over a loan for a previous vehicle she purchased that she only kept for 2 years.
Anyway, she seems bound and determined to make the mortgage payment a priority and keep the house, that way she can sell it and downsize rather than just lose it. Thanks for the replies.
Post # 14
- Wedding: September 2015 - Ketchum, ID
@IheartUFC: it sounds like she needs to go to a financial counselor.
Post # 15
- Wedding: August 2013 - backyard in the woods
Pretty sure they can’t take your house in a bankrupcy if it’s your only residence. However, she will still be responsible for the payments, so it’s not what she’s thinking it is.
Post # 16
@IheartUFC: Thanks for the update ! I think you shouldn’t expect this money back unfortunately, but I hope she will. But I agree with @mrspinesol: there is something wrong with her way of dealing with finances and she should definitely seek advice and a good financial plan/budget with a counselor. It’s a good thing she decided to have a roommate to split the costs. If she wants to get a better situation, it’ll take time and discipline, but she can succeed if she’s willing to change and put efforts into bringing her finances back on track.