When your income drops, your expenses probably stay the same, at least at first. While there may be opportunities to make changes to your lifestyle or your budget, you may find yourself unable to pay all of your bills.
If your income dried up completely, you may have fallen behind even on the most critical of bills, like your mortgage. If your lender has sent you a notice that they intend to foreclose or if you are at least one full month behind in your payments, foreclosure could be in your future. Thankfully, filing personal bankruptcy could help you prevent the loss of your home.
Bankruptcy will temporarily stop collection efforts
One of the greatest benefits of filing for bankruptcy is the automatic stay that you receive as soon as you file. An automatic stay binds creditors and prevents them from engaging in collection activity, ranging from calling your home to finally lawsuits until the courts have either approved or dismissed your filing.
Bankruptcy can give you a few critical weeks to negotiate with your lender, rework your budget and otherwise get things back on track so that you can make your mortgage payments.
Bankruptcy could put you in a better position to negotiate with your lender
Foreclosure and the eviction process can be very expensive for the bank — and they really don’t want your home. They could take a massive loss, even if they are able to resell your home relatively quickly. If you file for bankruptcy, especially if you file Chapter 13 and try to restructure your debts, that might be enough to motivate your lender to work with you.
The sooner you take action when you know you can’t manage your debts, the better your chances of preventing the worst kinds of collection activity, like foreclosure.