Can You Finance A Property That Has A Lis Pendens What Happens If I Don’t File Bankruptcy?

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What Happens If I Don’t File Bankruptcy?

Not filing bankruptcy can, in many cases, have longer lasting consequences than filing. Most of my clients ask, “What happens if I do nothing”? There are many opinions on the subject and the credit industry spends billions stigmatizing bankruptcy as a means to find relief from a mountain of debt, foreclosure, repossessions and harassing calls. One client came in to my office, lets call her Sally,who asked why she should consider bankruptcy and what might happen if she did nothing- would she get sued? What would happen to her belongings? Would she lose her home and car?

Sally appeared pretty stressed from her situation. She was recently divorced and had a child to take care of. She was a few months behind on her mortgage and about to fall behind on her car payment as well. She had used credit cards (over 50k -running at 18% interest+) to supplement her income while she went through her divorce, which had been expensive. She made a decent income, but couldn’t make ends meet with her crushing debt load. Sally even took money out of her retirement account to help pay her bills, but still fell behind. We discussed various options to relieve her burden, including the possibility to debt settle her bills and attempt a loan modification of her mortgage which had a fairly high interest rate.

We decided that it was in Sallys’ best interest to file a Chapter 13 re-organization. Why? Sally had received Notice from the bank of a Lis Pendens. That’s the banks Notice that they were about to begin foreclosure. She tried to work with her creditors, to no avail, they called her at all hours at home, then at work. Turns out that Sally has a second mortgage on her home and the home, like many in Central Florida, lost so much value that the second mortgage could be stripped off in the bankruptcy. With the strip off of the second mortgage and the elimination of her unsecured debt, Sally would be in a better position in the long run filing bankruptcy than attempting settlements, which she did not have the means to do.

What if Sally did nothing? Sally was about to get sued in foreclosure and it was likely her creditors would file lawsuits as well. If the home was foreclosed, she would have been evicted, the home sold and a deficiency judgment would be placed against her, including fees, penalties and interest. Judgments in Florida gain interest at 10% a year and stay viable for 10 years. However, they can be renewed at that time for another 10 years. The creditor could then seize and sell at auction all her property including cash, vehicles and other property, except $1000.00 dollars worth, to satisfy her debt. If there was not enough to sell, they would wait and keep repeating the process years later until the debt was paid.

With the elimination of much of her debts, Sally could make her plan payments in the bankruptcy, keep her home and car, pursue a loan modification with her bank while she was reorganizing her finances and graduate from bankruptcy with a much brighter financial future. The collection calls would end. She would begin to repair her credit and after 10 years or less, the bankruptcy would be removed from her credit reports.

I never advise clients to consider options as short term goals of relief but to carefully consider which options place them in the best financial position for their retirement or to enjoy their retirement. Bankruptcy is not the only solution to a financial crisis, but sometimes its the best solution. A complete financial analysis must be made and all options explored in order for someone, like Sally, to make informed decisions on how best to meet their long term financial goals. If only she came to see me earlier, she would have saved her retirement account – its exempt!

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