One sign of our improving economy is shrinking unemployment, but getting back into the workforce may not stave off collection or foreclosure if a homeowner has accumulated too much debt while unemployed.
Bankruptcy is one solution.
“I think a lot of people don’t know that bankruptcy can help stop foreclosures and allow you to repay your mortgage if you’re behind,” said Rebecca Lamm, a general practice attorney with Franks Gerkin Ponitz Greeley, in Marengo. “We’re seeing that a lot of people are getting back to work now, but they may have accumulated debt from the recession. They may feel they’re not eligible for bankruptcy because they’re working.”
It’s a common misconception that you must lose your home or car if you file, Lamm said. “If the mortgage balance of your home or the balance of your car loan exceed the fair market value of the property, and you continue to make your monthly payments, we’re usually able to keep those items for you.”
Of the two different types of consumer bankruptcy, Chapter 7 removes liability without making payments. If a person is working and making too much to qualify for Chapter 7, Chapter 13 allows for reorganization; essentially a court-ordered debt consolidation program that mandates creditor participation.
Bankruptcy can help people start over after the recession and avoid draining their retirement accounts because of credit cards and medical bills, Lamm said. A bankruptcy won’t affect qualified retirement accounts such as IRAs and 401Ks.
“Consumers can file for bankruptcy and keep those accounts safe from their creditors,” Lamm said.
“Bankruptcy can be on your credit report for up to 10 years, but it can also stop negative credit reporting and removes liability on outstanding debts,” Lamm explained. “We typically see that about a year after filing, most people experience increases in overall credit scores, and after about three to four years, they even have eligibility for traditional financing for mortgages.”
